Retirement Planning for Farmers

FOLK2FOLK

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?

Many of our farming clients continue to contact us to discuss funding for their diversification projects, but we’re increasingly hearing from older farmers; those who are past retirement age but still farming on their own farm.

They don’t want to come out of farming quite yet because of potential upcoming changes to the Basic Payment Scheme – where there’s a possibility of being able to draw down seven years of payments in a one-off lump sum. While that’s not confirmed, and the tax implications unknown, it appears to be keeping some older farmers hanging on in there with the farm.

But their life isn’t without pressures. Particularly from the bank. A common scenario is where the farm’s 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.  But perhaps a cottage or bungalow has just come up for sale in the village and, having lived and farmed locally their whole life they’re part of the social fabric, 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. However, they’re sitting on an asset of £2.5m consisting of unencumbered farmhouse and land.  With the right level of security, FOLK2FOLK could help them refinance the bank overdraft, alleviating that pressure, and finance the purchase of the new house in the village. Perhaps it could then be let on an assured shorthold tenancy and 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 will pay off the loan and they can move into their new house in the village.  With the considerable funds left over they could go on to become a FOLK2FOLK Lender which would provide them with a monthly income of typically 6.5% p.a. to supplement their retirement.

If this scenario sounds familiar to you and you want to chat through how a FOLK2FOLK loan or investment could help, please Talk To Us.

 

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