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Contact us | www.future-financial.co.uk | E-mail your comments | Archive | |
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Planning for later retirement The downside of us living longer is that our pension plans have to last longer.
For the basic state pension, this is important because of the parlous state of public finances in the wake of the credit crunch and recession. With extended life expectancy and a falling birth rate, the ‘support ratio’ that is the number of people working and paying national insurance contributions compared with the number of people eligible to claim state benefits, such as pensions, is falling. Add to this the fact that we taxpayers have had to pour billions of pounds into the banks and it is clear that the basic state pension is rapidly becoming unaffordable. This is why, from this year, the state retirement age for women will gradually start rising from 60 to 65. It is also why the Government has already announced that the state retirement age for everyone will then have to rise (in stages) from 65 to 68 between 2024 and 2046. Does this really matter? This change will start to affect people more quickly than they may imagine. Those now in their 50s will quickly be ‘caught’ by the higher state retirement age. Of course, for most people the basic state pension is likely to form only part of their retirement income with the balance being provided by an occupational or personal pension. However, except for those lucky enough to be in one of the few remaining ‘final salary’ (or defined benefit) pension schemes (if not closed in the meantime), the company or personal pension they build up will be affected by the need to last longer than was expected at the time they started planning. That together with low interest rates is why annuities are more expensive than a decade or so ago and a given pension pot secures a lower income than was once the case. So where does that leave us? Unfortunately, this means that not only will most people receive a smaller income than expected, but they will also have to wait longer for part of it. And, with the basic state pension currently being worth just under £5,000 for a single person, that represents a quarter of the entire retirement income of a man who had built up a pension fund of about £220,000, by age 65. By having to wait a year or more longer, the situation is simply exacerbated. What can we do? The best solution is to take advice and then start planning to ‘fill the gap’. This can be achieved in a number of ways, from increasing your pension contributions to making better use of the Individual Savings Account limits that cut in for the over 50s last October and for everyone else in April 2010. |
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