Retirement age goalposts

Stephen posted on November 23, 2011 08:15

However, between December 2018 and October 2020, the starting age for state pensions will rise from 65 to 66 – for men and women – and will go back even further between 2034 and 2036 (when it moves towards 67) and between 2044 and 2046, when the current target age of 68 is reached.

Seem a long way off?
While 2046 sounds a long way off, it is only 35 years; that means that anyone under the age of 33 now will have to wait three years longer for their basic state pension (up to eight years longer for a woman) than those who have retired in the past year or so.

Does it matter?
For many people, of course, it is personal retirement planning that matters most, isn’t it? Well, perhaps not. A couple currently in their mid 60s with a pension fund of £520,000 might expect a pension of, say, £20,384 a year, if they want it to escalate at 3% a year Source: sharingpensions.co.uk) and reduce by 50% on the first death. If the couple were both entitled to a basic state pension, this would, today, be worth £5,311 a year each. That effectively means that their combined basic state pensions represent more than a third of their total income.

Clearly, for some people – even those with significant personal pension funds – the basic state pension will represent a significant proportion of their retirement income. So having to wait much longer for the additional income to start could involve considerable financial pain.

What can you do?
Not everyone wishes to work beyond age 65 – or has the health to do so. However, even those who are relatively close to retirement can consider ways of ‘plugging the gap’ caused by a later state pension than previously expected.

One option might be to maximise ISA investments, because the money can be taken as a tax free amount at any time, without the sort of restrictions that apply to pensions. If, however, you are already “maxed out” on ISAs (currently £10,680 per person, each year) it may be that pension contributions could offer an alternative.

Thanks to the introduction of flexible drawdown, earlier this year, those with a guaranteed lifetime income of £20,000 a year or more can opt to take as much out of their pension fund each year as they wish. This means that annuity rtes and GAD limits do not apply, so building up a pension fund of, say £15,000 – which could be done relatively quickly, depending on earned income and current contribution levels – would then be able to draw £5,000 a year for three years without breaking any rules.

Using flexible drawdown prevents you from making further pension contributions, but nevertheless represents the sort of sophisticated retirement planning that is available, subject to professional advice.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

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