CONCLUSIONES Y TRABAJO FUTURO

A Tump sum’ is a once only payment which is often received with Defined Benefit

occupational pensions. It is calculated as a proportion of an individual’s final salary pension, is tax free and is paid when the pension commences. Lump sums with DB pensions have the attraction that there is no stipulation as to how the money should be used and recipients are free to use them as they wish. In the sample there were 16 respondents who had previously worked in the private sector. O f these, 4 respondents had private defined contribution pensions which were paid as an annuity on retirement. Annuities may also have a tax free lump sum attached to them but the amount taken as a lump sum is at the individual’s discretion. By taking a lump sum, however, the actual pension fund is reduced.

Table 6.8. illustrates the distribution of occupational pension lump sums amongst respondent households. Twenty nine of the forty households had received a lump sum and four had received an annuity. Six couple households had two lump sums each and twenty seven others, including single households, received one lump sum. Seven households in the sample had not received a lump sum but respondents in three of those had not reached retirement age.

Table 6.8. Retirement lump sums received per household

Cohort Households receiving retirement lump sums

Total Households with lump sum

Households w ithout a lum psum Two lump sums received One lump sum received Cohort 1 2 9 11 3 Cohort 2 3 9 12 1 Cohort 3 1 9 10 3+ Totals 6 27 33 7

+ resp o n d en ts still em ployed

For many respondents the importance of the lump sum to their retirement finances was indicated by the number of times it was mentioned during the interview. It not only enhanced residual savings and investments for most respondents but part of it was used by some to repay the mortgage thus ensuring full ownership of a house. Margaret Lewis, a single

householder, had very carefully planned her retirement and the use of the lump sum to pay off her mortgage, as she explained.

M argaret Lewis: And what I did was I organised the mortgage to coincide with, to finish, on the day that the lump sum came through, so that was sort of co-ordinated. (SF25-2)

Another respondent, Donald Johnson, in a couple household with dual occupational pension incomes, explained the value of a lump sum as a resource for supporting his normal

household expenditure and resolving his monthly anxiety about maintaining a positive bank balance.

Donald Johnson: When we were both working in the early stage of life we would often be overdrawn. (.) and you always seemed to be on the margin from month to month. A friend of mine who was an accountant said to me ‘income is not the problem, capital is the problem. Once you get ahead, if you get the lump sum then your problems stop.’ And that’s exactly what happened the moment we retired and when we got [the lump sums] we always seemed to be able to be totally on top of everything. (PM07-1)

The majority of respondents appeared to use at least some of their lump sums either to add to existing savings or start an investment portfolio or to add to an existing one.

6.3.2. Savings and investment.

It was noted in Chapter 5 (Section 5.3.1) that many respondents were encouraged to save when they were living with their family of origin. Before retirement most respondents had established a savings fund sometimes carried on from childhood. Table 6.9. shows that all respondents claimed to be either savers or investors. Those with investments tended to be regular savers as well.

Table 6.9.. Savings and investments of households by cohort

Cohort Savings oniy investm ent for incom e No savings or investm ent Cohort 1 7 8 0 Cohort 2 5 8 0 Cohort 3 6 6 0 Total 18 22 0

All respondents had a savings account but there were a number of different approaches to the activity which respondents had taken. Bill Morris, in cohort 3, had been unable to save seriously during his earlier life course as he had four student children, all of whom went to university.

Bill M orris: I had four kids through university. Int. Four?

Bill M orris: Four kids. I worked it out that the last year my last child was at university I got every cost and I put it down, just for one year. It just came to between ten and a half and eleven thousand. So if you’ve got four kids going to university for three years or four years at ten grand a throw you’ve lost nearly two hundred grand. That’s where your savings money goes. You’re not going to save much apart from your pension. (PM30-3)

He considered that his children had taken any savings that he might have made, in university fees which was a strong form of intergenerational exchange. The effect that intergenerational exchange may have on retirement plans is discussed in Chapter 9 (Section 9.2.4)

Another respondent, Raymond Edwards, was not systematically saving but his

personal circumstances and retirement income allowed money to accrue in ordinary accounts which was then transferred to a savings account.

Raymond Edw ards. Yes save by default really. We don’t or I don’t

consciously put any money away as a means o f saving but I’ve always saved so I spend what I need to spend and what’s left just mounts up and saves. So then I’ll move it from one account to another as and when necessary.

(CM23-3) Edward Hall explained how he and his partner started investing and saving whilst employed and, on retirement, switched the investment yields to provide income. He illustrates a process which was probably used by a number of other respondents to provide income in retirement.

E dw ard Hall: Thanks to our financial adviser all the time we were working and getting regular income these investments were ploughing back the yield but when we stopped getting our full salaries, we worked out how much we were going to be short of by not getting our full salaries and so our investment adviser said we will ask ‘this and this and this to divert the yield into your bank account instead of ploughing it back in’.

We have tried to work it out. I think we have slightly overestimated what we need [for income] from the investments because we keep piling up a surplus now. (PM17-I)

It will be shown in Chapter 7 (Section 7.1) that a savings fund, usually specially designated, was used by most respondents to pay for large items of expenditure instead of using credit. The principle was explained by Gerald Hughes.

G erald Hughes: I’ve got one deposit account or whatever it’s called. I keep a reasonable amount in there. I keep enough if I need anything instantly. I keep it above ten k. So if I need anything instantly I can get it. (SM22-1)

An instant withdrawal savings fund contributed to the residual wealth of respondents in that it allowed them to purchase expensive goods outright and not to pay interest on a bank loan or

other credit use. Although the interest accrued in a savings account would be minimal many respondents were able to save from their monthly income and thus continuously replenish their savings fund.

63.3. Legacies.

Respondents were asked if they had received a substantial financial ‘windfall’, such as a lottery win or a legacy during their life course. Although no lottery wins were recorded. Table 6.10. shows that 16 of 32 households had received substantial legacies with 8

households not responding. As with DB occupational pension lump sums there is unlikely to have been a restriction on how a legacy could be used.

Table 6.10. Legacies received by households by cohort

Cohort Household received Substantial Legacy Yes No Not Known Cohort 1 6 6 3 Cohort 2 5 5 3 Cohort 3 5 5 2 Totals 16 16 8

Table 6.11. notes that of the 24 households where the receipt or non receipt of legacies were discussed and the respondent’s class of origin could be determined, 7 of the 9 middle class origin households received a substantial legacy, 6 out of 8 lower middle class households also received one, but only 1 out of 8 working class origin households had received a substantial inheritance. (The one legacy received by a working class household was from the respondent’s partner’s mother who left a house to her daughter)

Table 6.11. Legacies received by class of origin.

Class assigned from fathers occupation Respondent households w here legacy status known Substantial legacy received Legacy not received Middle 9 7 2 Lower middle 8 6 2 Working 7 1 6 Total 24 14 10

Respondents were asked if they had used the legacies or substantial financial

‘windfalls’ that they had received for a particular purpose. Most respondents had added them to their savings fiinds or investments portfolio. Some respondents shared legacies with their children as will be discussed in Chapter 9 (Section 9.1.1).

Jack Watson, a single householder in cohort 1, had three different ‘windfall’

acquisitions but did not discriminate as to how he used them. He simply noted that together they had improved his savings and his financial well being.

Jack W a tso n :.... but since I’ve been retired because of the lump sum then, co-incidentally, because of the divorce settlement I’ve actually been better off in terms o f capital oh and my parents dying, those three things came together,. So consequently I am less strapped than I was during the period that I was married and had a normal income. (SM34-1)

Similarly Walter Hill’s legacy was deposited in his savings account and would have added to the basic sum which was creating an income from interest.

W alter Hill: Mildred’s mother died, let me guess, ten years ago. The money came in, went into a deposit account. It would have been nice to have

done something that we wouldn’t otherwise have done with it but we couldn’t feel what we wanted to do, really, so it has just gone into the pot. The same happened when my mother died. (PM28-1)

Linda Roberts also had received legacies but she had reinvested them as part o f her investment portfolio.

Linda Roberts: I had quite a lot of investments most of which I had inherited. My money lady is aware of how (.) she said to me one day. The point is you are not really interested in money are you', and I said "No, I'm not.' I've always been fortunate enough to have enough. So she put it all in a bond for me. She sold all the investments and they are in a bond and she administers this and it’s in various holdings and we've divided it up amongst various

holdings of the bank and I leave it to her. (SFI5-1)

In contrast, Roger and Dorothy Scott received legacies fi*om their respective parents at a particularly difficult moment for their own household finances. Their household had only one income which was Roger’s, who retired at 55. The inherited money was used to enhance their depleted basic savings and investments.

Roger Scott: You also asked about legacies. Yes we have had money from our deceased families’ estates which have gone into our accounts. Had we not had those income bonuses then our circumstances would be much more serious than they are today because my retiring five years early without any other income \i.e no state pension] coming into the house the money that I would have saved and did save would have been expended by now simply because o f domestic and family circumstances so we were very fortunate to have those windfalls, if you like, coming along. (CM29-2)

The Scott’s situation with only one income in a couple household illustrated the advantage for many Third Age couples of two pension incomes and two lump sums in supporting retirement finances as discussed in Section 6.2.5.

Arthur Morgan was still employed. His household had received a substantial legacy from his partner’s mother but they also were not saving regularly from Arthur’s income

A rth u r M organ; The only investments we have got are what’s left over from Ruth’s mum’s money. We don’t save regularly so we are not putting aside money. Ruth is not working so we are not flushed with money at the moment but we’ve got no mortgage and the kids have grown up. (PM36-3)

When a substantial sum was received respondents reacted in different ways. Some respondents were content to let their money remain as a savings fund. Others managed it themselves with varying degrees of skill but a majority preferred to use professional financial advisers. The use of financial advisers and self-investment is discussed in Chapter 8 (Section 8.7.). Legacies as an instrument of inter-generational exchange are discussed in Chapter 9 (Section 9.1).