Plan ahead for a singular retirement

Harriet Meyer explains the key issues you need to consider if you're retiring on your own.

Richard Elms, 64, from Peterborough in Cambridgeshire, is carefully planning his retirement as a single person. He has two company pension schemes, including one final salary scheme, and hopes to draw an income of around £18,000 to £20,000 a year after tax in retirement.

"I've considered what I need to run the house and the cost of what I'd like to do in retirement, such as travel," says the asset analyst. "But it's very easy to underestimate the cost of living as a single person, and how you cater for future unknowns, alongside making sure there's a buffer against inflation."

He got divorced in 1999, which meant he faced "starting from scratch".

"The mortgage went on considerably longer than expected, and I was made redundant - it wasn't clear what would happen financially," he says. However, he managed to clear his mortgage two years ago. "I didn't want that millstone around my neck in retirement and overpaid on this to clear the debt."

Richard is wise to plan ahead, given people will spend around a third of their lives in retirement. For the recently divorced or widowed, living costs may suddenly leap, leaving little spare income. Paltry savings rates, alongside an uncertain economic climate and increases in state pension age, make it vital to know where you stand.

Richard has discovered he will only receive around £75 a week in state pension, around half the full amount, because of contracting out of paying the state second pension (also known as the additional state pension) in his previous job.

"It’s important for people to check these things, so they don't get a shock," he says. "I've also thought about the cost of long-term care. I would probably release equity from the house or be forced to sell it to fund this, although, of course, I’m hoping it won’t be needed."

Planning your retirement

There is a whole host of considerations that people have when deciding how to take their pension benefits. These include the amount of income they require, the level of pension and savings assets they have, how much risk they're willing and able to take, their personal circumstances and state of health.

Fortunately, the pension freedoms introduced in April 2015 give you greater choice on what to do with retirement savings, which could be valuable for a single person. If somebody doesn't have a spouse or partner, then they may only need to provide for themselves.

For example, many single people may choose to buy an annuity, a product from an insurance company that provides a guaranteed income for life. They may be less worried about a pension fund passing to family on death, perhaps making annuities more appealing than for those in relationships.

Richard hasn't yet decided whether to buy an annuity with his money purchase company pension or opt for flexible drawdown to release a lump sum towards retirement when needed. "I'm considering my options," he says.

Patrick Connolly, a certified financial planner at independent financial adviser Chase de Vere, says:

"Being single could also mean that retirees can withdraw more money from their pension or take more risk with the underlying investments if they’re only catering for themselves, particularly if they are in poor health."

If you are unsure what to do with your pension fund, you may need to seek professional advice before making a lasting decision. The Pensions Advisory Service can provide free guidance, but you will need to pay an independent financial adviser (IFA) for more extensive advice.

Transferring your pension

Some single people may have the benefit of a workplace final salary scheme, also known as a defined benefit scheme, which offers a ‘gold-plated’ income for life – one that is guaranteed and that rises in line with inflation.

One decision may be whether to transfer their final salary scheme to a personal pension or self-invested personal pension (SIPP).

This is particularly the case for single people, considering one of the major benefits of final salary schemes is that they usually provide a pension for the member's spouse or civil partner if they die first.

This benefit won't be a requirement if you’re single, so if you transfer your final salary scheme to a personal pension or SIPP you could increase your pension and have more options over what you do with the money.

"There are a number of reasons why people have been transferring away from final salary schemes," says Mr Connolly. "These include being able to pass pension assets to their children or because they are in a poor state of health and so might not live for long."

However, this alone is not a sensible reason to transfer out of a final salary pension. The starting point is that everybody should have a secure income to meet their basic living costs in retirement.

It's still important as a single person to check any pension scheme details carefully for its death benefits, and to ask if you can complete a 'nomination of beneficiary' or 'expression of wishes' form to say who will benefit from pension payments in the event of your death.

You have to take financial advice by law if you want to transfer out of a final salary pension worth £30,000 or more.

Expressing your wishes

If you're on your own in retirement, you may worry who will look after you in the event you fall ill, or lose physical or mental capacity. You should put in place a lasting power of attorney (LPA), a legal document that gives another adult the legal authority to make certain decisions for you if you become unable to make them yourself.

There are two types of LPA: you can appoint someone to manage your property and financial affairs and/or make decisions about your health and welfare. This includes managing bank accounts, and paying bills, alongside making decisions over your medical care, and choice of care home.

If you don't have family, you can choose trusted friends who are familiar with your circumstances and wishes. You can fill in LPA forms online at Gov.uk/power-of-attorney, paying an £82 fee to register each type of LPA with the Office of the Public Guardian.

Also, while you may not have children or a partner to consider, it's still important to make a will. If you die without making a will, the rules of intestacy determine who gets what. For example, if you die in England intestate without any living relatives, your whole estate goes to the crown. You can check who may inherit in particular situations at Gov.uk/inherits-someone-dies-without-will.

Barbara Allen, 63, has been divorced for 20 years and finds it a struggle as a single person in retirement.

"Like many single women, I've worked full-time all my life and paid full national insurance contributions (NICs) for my own state pension," says the former design technology teacher from Liverpool.

Barbara, who is an active member of campaign group Women Against State Pension Inequality, is finding it hard, given that she has been told she must wait until age 65 to claim her state pension. This means she is steadily using her limited savings to fund everyday costs.

"I only discovered at age 58 that my state pension age was being pushed back. I was dealing with the death of my mother and had already put my retirement plan into action by then, as I took early retirement from teaching at age 57. I understood state pension retirement age for women was age 60," she says.

Now she is living off modest equity, released from the sale of her previous home in Essex and a small actuarially-reduced teachers' pension. She moved back to Liverpool and bought a small house in order to be mortgage-free in retirement.

"I was married, but was left divorced and holding the baby many years ago. I decided to retrain as a teacher in my 40s to provide a home and stability for myself and my daughter," she says. "I'd had my own business in bridal wear for about 11 years, but when I got divorced no part of the settlement discussed pensions and there was no maintenance.

"My plan was property – to move to the South East and make money from this for my retirement, while fast-tracking my new career as a teacher."

Barbara has paid 45 years' worth of NICs, but will receive £130 a week in state pension at age 65, five years after she had planned for this money to be part of her retirement income.

"It's a reduced state pension as I was contracted out at one stage," she says. "This is an additional shock added to the five-year delay, which has cost me approximately £46,000 in income.

"If there's just you and no partner, it's difficult to do it all – even though I'm used to looking after myself."

Barbara is retraining as a hypnotherapist to work during retirement.

Paul Osborne, 58, from Southend, Essex, decided to transfer his defined benefit pension scheme to give greater flexibility as a single person. He was made redundant in 2008 and had to live on benefits after working in information technology for a credit card company for 30 years.

"I didn't like this at all and mulled through my options, deciding to do what I could to take control of my life," he says.

He chose to take early retirement and transfer his defined benefit pension scheme, worth around £567,000, into a personal pension, with flexible drawdown, which pays him around £25,000 a year.

"I am pleased about pension freedoms because they've given me the flexibility to do what I want with my savings," he says.

"I've chosen not to take the tax-free lump sum, but to leave this invested. I am getting a decent standard of living as a single person and I’m still young enough to enjoy the money – I'm not beholden to anyone."

Simon Torry, director of independent financial planning firm SRC Wealth Management, advised Paul on the transfer. He says: "Paul's priority was to enjoy his pension while he was still young enough to do so.

Having the flexibility to take a larger income in the early years that could be reduced in later years – when spending requirements may have diminished – was what he was looking for. After weighing up the pros against the cons, we advised that a transfer was suitable for him."

Three tips for singletons

Consider financial advice

If you are seeking free guidance, you could speak to The Pensions Advisory Service (Pensionsadvisoryservice.org.uk), on 0300 123 1047, or the government's Pension Wise (Pensionwise.gov.uk) on 0800 138 3944.

For a more hands-on approach, speak to an IFA. The Pension Income Choice Association (Pick-a.org.uk) has a list of IFAs, all of whom are retirement specialists and can give you advice on alternatives to annuities, such as drawdown plans. You can find a local adviser at www. moneywise.co.uk/find-an-ifa.

Check benefits

Make sure you are claiming all benefits you are entitled to. Charity Citizens Advice is a good place to start. You can also check what benefits you might be able to claim at Gov.uk/benefitscalculators. Meanwhile, charity Turn2us (Turn2us.org.uk) helps people in financial hardship to gain access to benefits, charitable grants and support services.

Consider long-term care

Most people have to fund care costs themselves or rely on councils, which can provide the bare minimum of funding. This can cause serious concerns for single people, given in 2015/16 the average cost of care for an adult was £716 a week for residential care and £596 a week for long-term nursing care, according to NHS Digital.

State support is only available when the value of a person's savings and any property falls below £23,250. You could fund long-term care through savings or equity in your home, but make sure you consider the options. The Society of Later Life Advisers (Societyoflaterlifeadvisers.co.uk) can help you find trusted accredited financial advisers who understand financial needs in later life.

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