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Old New Year - Article Published 24th January 2013

To read the Article Published in The Portugal News Online please click here

Happy New Year to all. Now that 2012 is well and truly in the past, what will 2013 offer us in a financial capacity? Bust or a genuine recovery? Maybe neither, but rather the prospect of higher taxes, ever-increasing public debt and a lingering bleak economic forecast look set to remain for the year ahead.

This scene could quite easily be mistaken for our world some 1000 years ago as kings, lords and their kinsmen travelled overseas to conquer worlds, leaving their home lands to heavy taxation and economic ruin to fund their endeavors. OK, it’s easy to mark a comparison between merchants or mercenaries of the past and bankers of today, but it reminds us that history has a tendency to repeat itself demonstrating that even with hundreds of years of human progress, little has actually changed.

The truth is that boom and bust is an economic forecast that we have been living with for centuries. The relevant question is how do you as an individual navigate?

As an example of current and topical financial planning, let’s take the theme of state retirement benefits in the UK. When pensions were first introduced over 100 years ago in 1908, the state pension age was set at 70 years of age. According to Longevitas, a life-expectancy think-tank, the probability of a 20 year-old male then reaching 70 was slightly more than a one in three probability, whereas only a few years ago, the state pension age was 65 when the probability of reaching 70 for a 20 year-old male was every four in five.

Whilst the age limit is being raised, pensions in payment to be frozen and conditions changed (yet again), the results of the analysis conducted by Longevitas highlight that the state retirement age should be set to 80 if the state continues to limit payments in order to cover the increasing longevity for the same growing number of pensioners. The argument being constructed, as it is with other retirement benefits provided by the state, is that some form of means test should be applied to decide whether the recipient should benefit. This then begs the question as to whether payments made over the years into the system are simply a form of level term assurance in that unless you make a genuine or needy claim, you will have lost your premiums.

Rather interestingly, the original state pension in 1908 was in fact means tested so it is a back to basics approach.

Politically rather than by reality of state financial need, generations have been led to expect the receipt of a state pension as a right at 65 years of age. At this late hour, many face working longer or simply use other means to tide themselves over until they attain the new and increased state pension age. More than ever, one must seriously consider the necessity of long-term saving and not total dependency on public coffers that simply will not hold water for the later years.

A percentage set aside on a regular basis must be properly analysed in terms of the amounts and timeframes or if a single lump sum may need to be liquidated from physical assets, even if it means receiving less today to build up a secure income or liquidity for the future. Using a professional, qualified and trusted adviser who is up-to-speed with financial opportunities and ongoing changes to its landscape can ensure that your expectations for the future has to have a far greater chance of being achieved.

This article is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investments or course of action.

Raoul Ruiz Martinez is a resident and independent consultant for Finesco Financial Services Ltd., Glasgow and advises private clients on financial investments in both the UK and throughout Europe under MiFID regulation. He can be contacted at the offices of euroFINESCOs.a. either by telephone on 289 561 333 or on email .

Finesco Financial Services Ltd is authorised and regulated by the Financial Services Authority (FSA). Some of the services provided are not regulated by the FSA because they are not included within the Financial Services and Markets Act 2000.

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