Teachers' Guide to Savings


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Teachers' Guide to Savings

  1. 1. A Teacher’s Guide to Saving Make the most of your savings and investments
  2. 2. Wesleyan for Teachers understands that teaching is a way of life, not just a job. We have expert financial consultants who have years of experience in helping teachers with their financial planning. In this guide we will explain how to manage your money effectively to ensure you make the most out of your savings. 2 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  3. 3. Contents 4 Introduction 5 How often do teachers save? 6/11 Five steps to saving 6 Emergency fund 7 What are you saving for and when do you want it? 8/9 Saving for the long term 10 Think about how inflation affects your savings 11 Review your savings 12/13 14 15 Looking ahead to retirement Key facts and stats Checklist and useful contact details 3 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  4. 4. Introduction We work with teachers every day both in schools and at home, helping to plan their finances. So we know that many teachers are thoughtful and careful savers and our research confirms this. However, it also shows that over half of teachers believe they have less understanding of savings and investments than the general population. In this guide we hope to show that many of you are on the right path when it comes to managing your money and give you some useful tips to help you make more out of your savings. We’ve also included some findings from our research so that you can see the attitude of others in your profession. There are no clear indications that the economy is going to pick up and you are likely to be feeling the squeeze on your pay packet, as the current pay freeze combines with rising prices and likely changes to your pension. So now is a good time to review your savings habits and make yourself a clear plan if you don’t already have one. If you need help from financial experts who understand your profession then please contact Wesleyan for Teachers. We are part of Wesleyan Assurance Society, one of the UK’s leading mutuals. We’ve been providing financial advice for over 170 years and have a proven investment track record. If you want to know what some of your colleagues think about us then we can tell you that 99% of teachers said ‘Wesleyan makes them feel valued as a customer’ and 89% are likely to recommend us to a colleague. I hope you find this guide useful and interesting. 99% of teachers said Wesleyan makes them feel valued as a customer 89% of teachers would recommend Wesleyan to a colleague Simon Rake National Sales Manager, Wesleyan for Teachers 4 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  5. 5. How often do teachers save? Once you have cleared any outstanding loans, you should try and get into a habit of saving regularly. Having money in reserve gives us choices – the choice of where to go on holiday, where to live and ultimately when to retire. On average, how much do teachers save every month? 48% 22% 15% With so many pressures on your pay packet, setting yourself a target or goal might help encourage you to save. If you can picture that new house or see your children at university, then you might be more inclined to save towards it. Everyone has different financial commitments, but our research has shown 40% of teachers manage to save every month or every other month. 0 1,0 0 >£ 0 -£ 51 3% £7 £5 01 -£ 1,0 0 0 5% 75 0 50 -£ 51 £2 -£ 00 £1 < £1 25 0 00 7% How much you put away will depend on your personal circumstances. Calculate your monthly outgoings and try to work out how much you can afford to save without impacting too much on your daily life. You could then set up a direct debit or standing order to a suitable account so it’s all taken care of automatically. Nearly half of all teachers who save every month put away between £100 and £250. It won’t take long for this to build up into a tidy sum for you to spend as you wish. 5 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  6. 6. 1 As you move through your career your savings will hopefully grow and it’s important to consider how you use that money most effectively. Here we take you through a step-by-step guide to building a balanced savings portfolio. Five steps to saving Emergency Fund We asked teachers what their first priority was when it came to saving. Just over a third said to have money in case of an emergency. Teachers’ savings priorities 11% No specific priority 100 10 90 35% 8% To have money in case of an emergency 80 20 70 Saving for your retirement 30 22% To be able to pass wealth onto your family 40 60 50 When you start saving, it’s good financial planning to build up an emergency fund. This is essentially a stash of cash that will keep you going in the short term if you are unable to earn for any reason, or face unexpected expenditure such as repairs to your home or car. 24% To save for a particular item or goal The amount you save will depend on your lifestyle and circumstances, but we usually recommend the equivalent of three months’ income, after tax. This money should be kept in an account that is easily accessible as you may need it at short notice. 6 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  7. 7. 2 Five steps to saving What are you saving for and when do you want it? As you go through life you will have different savings goals. It’s important to consider whether you are saving for the short or the long term as this should help you decide where to keep your money. Why else are teachers saving? Last will & testament 1 3 & 2 37.5% 27.5% 23% 17% To purchase a property Home expansion/ improvements Children/grandchildren To pass on to family members Open 8% 7% 4.5% 3% To buy luxury items To invest in/start-up/ buy a business Pursue other ambitions eg: sabattical/voluntary work Weddings Saving to buy a new car could be a relatively short term goal, whereas putting money aside to pass on to your family or to pursue other interests later in your life will be a longer term ambition. a normal savings account but the key benefit is that you don’t have to pay income or capital gains tax on the interest or on your money when you come to withdraw it. That’s why there is a limit on how much you can save into an ISA each year. If you are saving for the short term, you should make use of your cash Individual Savings Account (ISA) allowance, which is currently £5,640 for the 2012/13 financial year. An ISA is like It’s important to review the interest rate on your ISA as many providers draw customers in with a headline-grabbing rate which diminishes over time. 7 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  8. 8. 3 Five steps to saving Saving for the longer term When you’re saving for the longer term, retirement for example, you might be prepared to take a bit more risk with your money and studies have shown that investing in shares offers a better return than cash over the long term* but also brings more risk. Do you understand the term ‘attitude to risk’ when it comes to money? 71.5% No 28.5% Yes You may have heard the term “attitude to risk” used in relation to investments and it’s key to helping you decide where to place your money. Risk and reward often go hand in hand so the more risk you take the better the potential returns, but you could lose money along the way. Cautious investors accept they will see a lower but consistent return on their money. We know that most teachers have a low risk attitude and are cautious investors, and would be uncomfortable investing directly into the stock market. However there are other options available that give you access to shares but in a more managed way. * Over a ten year period there is a 90% probability of shares outperforming cash: Barclays Capital Equity Gilt Study 2011. 8 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  9. 9. g to take? How much risk are you willin 38.5% 27% 27% 7% k tr es hi ke to ng illi W 4. 4. W illi 3. ng W to illi ta ng ke to m ta od ke er ta at m e od to er hi gh gh e at low ke ta to ng illi W 2. ris k ris k ris se er av sk Ri 1. isk 0.5% With profits ISAs, for example, invest in the stock market but are more suitable for cautious investors as they offer a ‘smoothing’ process that aims to reduce the effect of short-term fluctuations in the market to deliver more consistent growth. As with cash ISAs your money will grow free of income and capital gains tax. How much you can invest is currently limited to £11,280 for 2012/13 if you don’t use your full cash ISA allowance, or £5,640 if you do. Another option might be to invest in a fund where people pool their money together to access a wide range of investments. This approach means you can spread your money more widely, reducing the impact of loss from a single investment. The advantage of funds is that an expert Fund Manager will normally research and choose the best investments to buy and sell. Quick tip: The key thing to consider when buying a with profits ISA is the financial strength of the provider. A company’s size is no indication of financial strength and smaller mutuals can fare much better than the insurance giants in this regard. When putting your money into any shares-based investment, you should be prepared to leave it in for at least five years. 9 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  10. 10. 4 Five steps to saving Think about how inflation affects your savings Inflation is still outstripping the Bank of England’s record low interest rates. This is not good news for savers as, put simply, inflation can eat away at the value of your money and reduce its buying power. £10,000 will be worth... £9,786 £8,974 £8,053 1 year from now 5 years from now 10 years from now For example, if you have £10,000 in an account paying interest at the Bank of England base rate of 0.5%, in 12 months this will be worth the equivalent of £9,786 in today’s value; in five years £8,974 and in ten years’ time, £8,053.* You should avoid keeping large sums of money in a bank or building society account but look at options which offer growth that keeps pace with or exceeds inflation. To see how inflation could impact on your savings use the online calculator at www.wesleyan.co.uk/investments *Figures based on inflation remaining at the 2.7% at time of publication, November 2012. 10 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  11. 11. 5 Five steps to saving Review your savings Just as saving regularly is a good habit to get into, so is carrying out a regular review. How often do teachers typically review their savings and investments? 12.5% No regular pattern 11% Once a month 13.5% Every couple of years 28% Every couple of months 35% Once a year A third of teachers review their savings and investments once a year, with just over a quarter checking them every couple of months. Again, this is good financial practice. There is no hard and fast rule about when you should carry out a review, but you might decide to do it every summer before the school year begins or over Easter, which often falls around the time of the new financial year on 6 April. What you’re looking for is that interest rates are still competitive and that your money is working as hard as you are. Quick tip: As you build up your savings and investments portfolio, try to keep your money in a range of assets so that if one type performs badly another may perform well during the same period. 11 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  12. 12. Looking ahead to retirement More than a third of teachers say enjoying their wealth in retirement is a priority and we know that this is the ultimate savings goal for many of you. Do you think the Teachers Pension Scheme will provide you with enough to live on in retirement? 72% You may already be enrolled in the Teachers Pension Scheme (TPS), although you will probably be aware that there are likely to be changes to this and other public sector pension schemes in the coming years. The final legislation hasn’t been passed yet, but it is fair to assume you will be required to pay more, to earn a lower pension, and have to retire later. You may therefore find yourself with a shortfall in your pension income or want to retire earlier. The key thing is to understand what your position is likely to be. 28% Quick tip: The earlier you start planning, the better prepared you will be to enjoy your retirement and by speaking to a Financial Consultant who understands the teaching profession and the TPS you will be able to put in place plans to suit your needs. 12 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  13. 13. In the years leading up to your retirement there are some important things to take into account to ensure you will be comfortable once you stop working. • Work out when you would like to retire and what level of income you will need. This will depend on the lifestyle you intend to have. Everyone is different. You may want to travel the world or be happy at home. • Your TPS and state pension income may not be enough to meet your needs, so calculate any shortfall between this and what you would like your ideal retirement income to be. You can get an indication of how much your pension will be worth by using the calculator on the TPS website (See below). 72% of teachers don’t think the TPS will provide them with enough to live on in retirement with 62% planning to supplement their pension.** • If you’re close to retirement, you may be able to make up any deficit through your tax free lump sum or additional voluntary contributions to your pension. If you’re still a long way off, think about taking out an additional personal pension or investing in other tax efficient products, such as ISAs or other long term investments. To access your Teachers Pension Scheme statements, check your service history and pay, and find out how much your retirement income could be, visit the website at: www.teacherspensions.co.uk. For more information about your state pension and to get a forecast of how much it will be worth visit www.direct.gov.uk/pensions. 13 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  14. 14. And finally, here are interesting facts for you to think about as you plan your savings. 23 years £9,676 The average pension of a female teacher in 2010/11 The average career length of a teacher Armed forces – 10yrs NHS – 11yrs Civil service – 13yrs Judges – 16yrs Firefighters – 18yrs Police – 23yrs £14,701 Which of the following financial investment products would teachers say they have a good understanding of? 45% The average pension of a male teacher in 2010/11 (Source: Independent Public Service Pensions Commission Final Report, March 2011) Source: Teachers’ Pensions Do teachers think their profession is more or less savvy with savings and investments compared to the general population? Do teachers think they will achieve all their financial goals during their working life? Yes 19% ISAs 33.5% 17% More savvy 54.5% Less savvy Unit Trusts No 55.5% 23.5% ? Not sure 25.5% 28.5% Don’t know Pensions If you were to recieve a large windfall which of these luxuries would appeal to you most? 16.5% 24.5% 26% 21.5% 4.5% 4.5% 1.5% 0.5% 16% 0.5% 12% Other Setting up your own business An expensive car Holiday Art/Antiquities Investing it for yourself/family A yacht Property abroad Property in the UK Investment Bonds None of these 14 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  15. 15. Checklist Having learnt more about savings and investments here’s a useful checklist to help you stay on track. Clear any outstanding loans Set up a direct debit to your savings accounts to help you save regularly Build up an emergency fund Utilise your full ISA allowance Consider longer term savings options Review your savings portfolio at least once a year Make sure your pension savings are on track For more information about the services provided by Wesleyan for Teachers visit the website at www.wesleyan.co.uk/teachers or call 0800 316 7035. Also look out for Wesleyan for Teachers at education events around the country throughout the year. (All research carried out by OnePoll on behalf of Wesleyan Assurance Society in Dec 2011, except** on page 13 from June 2011) 15 For more information visit www.wesleyanforteachers.co.uk or call 0800 316 7035 quoting reference 60707
  16. 16. For all your financial needs: • • • • Savings and Investments Retirement Planning Life and Income Protection Mortgages and Insurance Please call: 0800 316 7035 quoting reference 60707 Or visit: www.wesleyanforteachers.co.uk Head Office Wesleyan Assurance Society Colmore Circus Birmingham B4 6AR Advice is provided by Wesleyan Financial Services Ltd through its brand names including Wesleyan Medical Sickness, Wesleyan for Teachers and Wesleyan for Lawyers. Wesleyan Financial Services Ltd is authorised and regulated by the Financial Services Authority. Wesleyan Financial Services Ltd is wholly owned by Wesleyan Assurance Society. Incorporated by Private Act of Parliament (No. ZC145). Fax: 0121 200 2971. Telephone calls may be recorded for monitoring and training purposes. WI-KFD-17-03/12