Working longer

One result of the new coalition Government having been formed is that the retirement age for men is likely to increase to age 66 rather sooner than planned by the previous administration.

Will you be working later than expected?

This might be seen by some as an assault on state benefits but, to be fair, the increase in men’s retirement age is already in progress, working towards 67 by 2044. All that has changed is the proposed timetable, which now catches people in their late 50s who have little time to plan for the transition.

Of course, the retirement age for women is already in motion, rising from 60 to 65 during the current decade; and there is no guarantee that the increases will stop at 68 – hence 70 is now being spoken of as the “new 65” – returning the basic state pension to the age at which it was introduced in 1908. The difference now is that far more people can expect to reach that age.

What is the reason for the change?
Increased life expectancy is one of the main reasons that this change needs to be introduced – there are expected to be far fewer people of working age, compared with the number in work and paying national insurance contributions, within the next 20-30 years, so the so-called ‘support ratio’ is falling; fewer people to provide benefits for more.

The current financial crisis is really only the final straw that has necessitated bringing forward the change in retirement age.

Interestingly, according to The Times (25th June 2010) out of 20 leading economies, only four (US, Norway, Iceland and Israel) have later retirement ages for men than we currently do and in 13 cases, men and women retire at the same ages.

Mind the gap!

What can you do?
Just about everyone under 60 is likely to be affected by the changes one way or another and this makes it imperative to review your retirement plans.

There are two key issues. First, as you are likely to live longer than you may previously have expected – and hopefully in better health – you will need a larger pension fund to provide more money for a greater period. If you buy an annuity, you will find that your money provides a smaller income than a few years ago; if you use pension fund withdrawal (also called unsecured pension or drawdown) you will be drawing your income for longer – especially as it looks as if the need to purchase an annuity at age 75 will disappear.

Secondly, you may well have to ‘fill a gap’ between the age you expected to retire and when you receive your state pension. For a married couple, this could be worth as much as £8,120 a year (plus indexation); so even a delay from 65 to 66 could have a significant impact on your overall income during the first year of retirement.

You could, of course, simply carry on working, but this is not an option for everyone; some people will not wish to be forced to work longer than previously planned.

The alternative is to use tax efficient savings vehicles such as an Individual Savings Account (ISA) or a pension plan to build up sufficient to ‘tide you over’. Under a pension, you would require a fund worth £32,480 to give you a tax free lump sum of £8,120 (the balance being taken as a taxable income); an accumulated ISA fund could, however, give you the total amount back immediately without any tax liability..

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. 

<back

Please register for regular financial news and to recommend a friend:

Register with us

 

These documents require Adobe Acrobat. Downloads may not work with older versions, please download the latest Adobe Acrobat Reader version 9 free of charge and follow steps 1, 2 & 3