A “soft landing” into retirement

According to research published by Aviva, recently, 68% of all adults in the UK expect to work beyond age 65 – whether they want to or not.

How long do you want to work?

There could be various reasons for this, not least that the state retirement age is already set to rise to age 68 by 2044 and might start rising as soon as 2016, if recent reports are true.

However, for many people the principal driver of their expectations for retirement is not so much when they will get their state pension – which is, after all, only just over £5,000 a year for a single person – but how much they have been able to save for their retirement themselves, or via an employer’s scheme.

How much is enough?
The best pension schemes – so-called final salary schemes – generally offer up to two thirds of average earnings in the run up to retirement as a pension.

Unfortunately, only very few people now belong to such schemes; for everyone else, their retirement income depends on how much they (and their employer) have invested in a pension plan and what investment growth has been achieved, less charges.

There is no substitute for starting pension planning early, because the longer you have to go to retirement, the longer your money has to grow in a highly tax-favoured environment.

Those who have not yet got started should be cheered by the fact that thanks to changes four years ago, anyone earning less than £130,000 a year can invest up to their entire earnings into a pension scheme and benefit from tax relief at their highest marginal rate. For higher earners, the rules are far more complicated.

So in addition to regularly saving as much as you can afford out of your income, you can also top up your contributions with occasional items such as an inheritance, or even a lottery win.

Is this the end of the ASP?

What are the alternatives for those nearing retirement now?
If you are already near to retirement, your options are more limited. According to Aviva, 61% of us plan to be self-employed once we reach retirement age; but for many, working part time is likely to be the best option, either for an employer or on our own account. It is here that the new breed of flexible plans – called Unsecured Pensions – is likely to be of greatest value. These allow you to access your tax free cash at any time after age 55 and then draw a taxable pension – or nothing at all, if you prefer – leaving the balance of your pension fund to carry on growing for later on, when you have less earned income.

The announcement that the government intends to remove compulsory annuitisation at age 75 is also likely to see the demise of the deeply unpopular Alternatively Secured Pension. This changed the rules on withdrawing an income directly from the pension fund when you reached age 75 (for those unwilling to use an insurance company annuity), but penalised families by taxing any money left on death at up to 82%. People will, therefore, have far greater flexibility in retirement, for much longer.

It is important always to seek independent financial advice before making any decision regarding your finances. For further information, please contact SDB Strategic Planners Ltd. The value of investments is not guaranteed; you may get back less than you put in.

NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND. 

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