Retirement Planning for Farmers

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What happens if you’re an older farmer with a farm and land but without family to take over, or the liquid means to transition into retirement?

While we continue to be contacted by farmers interested in securing funding for their diversification projects, we’re also hearing from older farmers who are past retirement age but still farming on their own farm.  Many don’t want to come out of the farm quite yet, but the reality of reductions in the levels of Basic Payment Scheme (BPS) is starting to take effect.  Cuts in the levels will impact directly on the bottom line, especially on a holding not actively generating alternative streams of income.  The possibility of linking retirement with a draw-down of the remaining six years of BPS in a one-off lump sum is still not confirmed and any tax implications remain unknown but it appears to be holding back many families from deciding their future direction.

A case study example is a farm that has not been generating good profit, the overdraft has become uncomfortable and there isn’t the cash to buy somewhere else to live if they do come out of the farm.  A cottage comes up for sale in the village and having lived and farmed locally their whole life they don’t want to miss the opportunity of securing a local home for their retirement.  The problem is they don’t have any cash, though they are sitting on an asset of £2.5m consisting of unencumbered farmhouse and land.

With this level of security, a FOLK2FOLK loan could refinance their bank overdraft, alleviating that pressure, as well as finance the purchase of the village property as a buy to let with the rent used to service the loan.  Within our loan time-frame of maximum five years, they could stay where they are on the farm and wait to see what happens with the Basic Payment Scheme and whether a windfall materialises.  When they decide to sell their farm, the sale income could pay off the loan and they could relocate into the village property.  With the funds left over they could go on to become a FOLK2FOLK investor which would provide them with a monthly income of typically 6.5% p.a. to supplement their retirement.

FOLK2FOLK does not offer financial planning advice, but if you are interested to know more about borrowing or investing via FOLK2FOLK, please Talk To Us.

 

Your capital at risk and not covered by the FSCS. Read about the risks here.

Is your capital working hard enough for you in retirement?

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Pension Awareness Day on 15th September is an annual reminder to take an interest in how hard your savings and pension are working for you in retirement.

As a retiree you have plenty of choice about how to use your pension to provide the income you need in retirement. For instance, you can leave money invested in the stock market while making regular withdrawals to cover living expenses (an option known as drawdown) and, of course, you can also take 25% of their money out of your pensions tax-free for use in other investments

These alternative options mean that pension savings have the opportunity to continue to grow even after retirement: a factor that has become increasingly important given the significant rise in life expectancy in recent decades.

But with this potential growth comes, as ever, an element of risk: by staying invested in shares, for example, there is a chance that the value of your capital could go down as well as up. And another possible downside of drawdown is that the investor takes too much income in the early years and thereby runs out of money at some point later on.

So, it is hardly surprising that a number of alternative forms of investing have become popular.

Peer-to-peer (P2P) lending is one investment option that has a lot to offer if you are happy to take on some additional risk compared to cash or bonds but with less risk and volatility than investing in shares. If you don’t feel your capital is working hard enough then investing via platforms like FOLK2FOLK can help you sweat every pound by providing an additional source of income to support your lifestyle during retirement while preserving your capital.  Additionally, secured lending provides you with the peace of mind that your capital is secured against tangible assets of land or property.

In the five years since FOLK2FOLK began nearly £250m has been lent via its platform without a single penny lost*.  If you would like to find out more about FOLK2FOLK’s secured lending and how you can supplement your monthly income with our 6.5% p.a. interest rate while helping rural businesses and supporting your local economy, call us on 0300 0535532 or visit www.folk2folk.com.

*Since FOLK2FOLK began in 2013, no Lenders have lost any money however this refers to the past and past performance is not a reliable indicator of future results.

Important: As with all investments, your capital is at risk. Peer-to-Peer lending is not covered by the Financial Services Compensation Scheme (FSCS).

Why P2P can be a positive investment choice for retirees

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The reforms of the UK’s pension system introduced in 2015 were prompted to a large extent by problems in the annuity market.

Prior to the changes, most people who reached retirement were effectively forced to use most or all of their pension funds to buy an annuity – a type of insurance product which pays a monthly income for life.

The main attraction of annuities has always been that the income they pay is guaranteed: there is no chance that the money can run out before the customer dies. But in the wake of the financial crisis of 2008, annuity rates declined sharply. As a result, thousands of people found themselves with little choice but to cash in their pensions in return for relatively meagre levels of income.

The freedoms brought in by the coalition government in April 2015 mean that retirees now have much more choice about how to use their pensions to provide the income they need in retirement. It is now easier to leave money invested in the stock market while making regular withdrawals to cover living expenses – an option known as drawdown.

Individuals can now also take 25% of their money out of their pensions tax-free for use in other investments without facing the punitive tax charges that were part of the pre-2015 rules.

These alternative options mean that pension savings have the opportunity to continue to grow even after retirement: a factor that has become increasingly important given the significant rises in life expectancy in recent decades.

But with this potential growth comes, as ever, an element of risk: by staying invested in shares, for example, there is a chance that the value of your capital could go down as well as up. And another possible downside of drawdown is that the investor takes too much income in the early years and thereby runs out of money at some point later on.

So, it is hardly surprising that a number of alternative forms of investing have become popular since the pension reforms were introduced.

Peer-to-peer lending is one investment option that has a lot to offer retirees who are happy to take on some additional risk compared to cash or bonds but with less risk and volatility than investing in shares. In recent years, P2P investing has emerged as an additional source of income for retirees and for those considering drawdown or buying a guaranteed income through an annuity. Typically, P2P lending tends to offer higher rates of return than offered in the current annuities market with the benefit of preserving capital in the event of death.

FOLK2FOLK is one P2P platform, that specialises in local secured lending, allowing investors to earn annual interest of either 5.5% or 6.5%* by lending sums of £20,000 or more to small, local businesses and entrepreneurs. In many cases with P2P investors, lending is helping to provide an additional source of income during their retirement to support their lifestyle.

The capital you lend is at risk, but bear in mind that these loans are secured against property owned by UK business borrowers. Funds can also be diversified across many borrowers in £20,000+ chunks – so if you lend £100,000, this could be spread across five borrowers of your choice depending on the availability of loan opportunities at the time of investing.

Lending through FOLK2FOLK also means that you can preserve your capital for future generations or partners: while interest is paid out monthly, your original capital is repaid at the end of the term, which can be up to five years depending on loan term.

Alternatively, by investing through the FOLK2FOLK platform, however, £20,000 would return interest of between £1,100 and £1,300 a year for up to five years* – and crucially, your capital would not be eroded, provided your borrowers repaid their loans. This can give investors greater flexibility to reinvest their capital later if things change and allow capital to be passed on within their inheritance set up which is not the case when buying an annuity.

A numbers comparison

By way of comparison, a 65-year-old who is considering buying a basic flat-rate annuity. At today’s rates**, £20,000 would generate a guaranteed annual income of £1,036 for life but you wouldn’t be able to pass this income or capital on to a partner or family in the event of a death.

For a £100,000 sum, the annuity would generate £5,181 a year as opposed to £5,500-£6,500 through FOLK2FOLK*.

And £250,000 would provide annual income of between £13,750 and £16,250 via FOLK2FOLK* compared with the £12,953 – and no return of capital – available from the annuity.

For more information about joining the local lending movement at FOLK2FOLK please visit – https://www.folk2folk.com/investing