April 13, 2022

Protecting your nest egg

The Easter holiday offers a welcome diversion from all that is going on around us – Partygate (is it really that hard to remember if you have been to a party or not?!), the seemingly never-ending increases in the cost of living and the terrible events unfolding in the Ukraine.

For younger members of our families in particular, excitement will be reaching near fever-pitch, with the thought of all those eggs to be eaten this Sunday.

After all, who doesn’t like a bit of chocolate now and then?

Eggs are important in financial planning too – our client’s nest eggs to be more precise.

What is a nest egg?

The term originated from the practice of farmers putting eggs into the nest of hens to encourage them to lay even more eggs.

From a financial perspective, by putting money away now you are doing so in anticipation of growing the capital value – helping provide for a future event.

Financial nest eggs are generally associated with retirement savings, and in particular pensions, but of course a nest egg for your future may also come in the shape of cash savings, property or other more liquid investments.

Looking after your pension nest eggs

Retirement is often thought of as something that can be dealt with when the time comes, and pensions can sometimes seem overly complex.

However, there are a few simple steps than can be taken to help look after your precious pension nest eggs.

How are those eggs looking?

Reviewing your pension funds is an important part of financial planning.

Time should be taken to consider how much investment risk you feel comfortable with now, which may not be the same as it was before (for any number of reasons).

Are your pension funds performing in-line with the level of risk being taken, and what are your investment options going forward?

This year has seen a lot of stock market volatility which has impacted upon investment values.

This is naturally unsettling, but patience is often considered key in periods of such uncertainty. You may therefore simply need reassurance that doing nothing for now is prudent.

All your eggs in one basket?

It is quite common to build-up a number of separate pensions over the course of our working lives.

Many of us have a natural tendency to want to consolidate these separate plans, to put all our retirement eggs into the same basket.
There are valid reasons for doing so – simplicity of administration, consistency of advice, a coherent investment strategy and the ability to access the funds flexibly upon retirement.

However, care should be taken before doing so – just to make sure that you are not giving-up any potentially valuable contract benefits (particularly in older pension policies).

Let us check over the detail for you.

Leaving your nest egg to others

Don’t forget to complete an expression of wish (a pension death benefit nomination form) to make sure your pension nest egg is passed on to your intended beneficiaries.

It also makes sense to update this nomination periodically, as circumstances inevitably change over time. Maybe you want to include children or grandchildren, and you certainly don’t want your pension funds passing to that former partner or ex-spouse do you?

There are normally two ways of doing this.

Firstly, there is the discretion route. You tell your pension scheme administrators who you would like them to pay any death benefits to, but they then use their discretion when distributing the funds. This approach often means that your pension nest egg is not included within any potential Inheritance Tax (IHT) calculation.

The second is the direction route, whereby the scheme administrators must follow your instruction – but with this control comes a price, as your pension fund may be included within the overall value of your estate for potential IHT calculation purposes.

As you would expect, Sutherland Independent can help you navigate through this, to help you pass on your nest egg in a way that you want, so please contact us if you would like to have a discussion.

Happy Easter! Enjoy the break!

April 13, 2022