At £175.20 a week, the state pension may not be enough for most people to live on, but it can make an important contribution to their retirement plans.
But now even this less than generous sum has gone a little further out of reach.
With a growing older population to provide for, the government needs ways to reduce the costs. So the minimum age for receiving a state pension has been raised to 66.
The state pension age of 65 was a set when life expectancy was very much shorter. It was just 55 years for males and 59 years for females in 1920 and growing old enough to claim any state pension was an achievement. By 2018, males in the least deprived 10% of areas in England could expect to live to 83.4 years. As we are all living longer, the Government needs us to work longer too.
Ministers have brought the next rise, to a minimum state pension age of 68 forward, and it will now be phased in between 2037 and 2039, rather than from 2044 as originally planned.
If you recently started work, you might find yourself still at it at the age of 70, or even beyond.
But state pension age rising can be a reminder that you need to take control of your future.
Taking out a private pension
The state pension on its own will not be sufficient to see us through our golden years. The increase in state pension age to 66 is a timely reminder for all of us to check our retirement savings are on track.
A private pension plan could mean a comfortable retirement – which you can start at any age over 55 that suits you – regardless of the state pension age.
A private pension is independent of your state pension, and any pension you may get from your employer. If you are an employee, you will almost certainly have an employer’s pension plan working for you under Automatic Enrolment rules. Making the most of these is a very worthwhile tactic, as your employer will, in most cases, have to make contributions for you alongside those you make yourself. But the returns you enjoy when retirement comes may not be as great as you wish, and if you decide to work for yourself, you will no longer have an employer contributing to your future.
A private personal pension avoids these worries. You will be responsible for making regular contributions to your funds – but although you will not have an employer saving with you, you will still have an even more valuable ally in the shape of the taxman.
The government wants you to ease the burden on the state in your old age, so it provide generous tax relief, which means that every pound in your pension fund costs you much less than a pound to put in.
This means that pension funds can be very rewarding investments. The money you put in is boosted by the taxman, and in many cases by the skills of investment managers and by the wonders of compound interest as the years go by.
It’s never too early to start, and the sooner you do the less it will cost to retire on your terms. Starting a pension in your 20s might seem premature. You will have plenty of other ways to spend your cash, but the earlier you start saving for retirement the earlier you may be able to do it – whatever happens to the state pension.
Getting the help you need
Of course, like any other financial arrangement, it pays to get professional help. There are many pension providers, some seem to offer better performance than others, some which let you share in the choice of how your money is invested, and some who will let you sit back and watch as their experts take care of everything.
Finding the plan that is right for you will be much easier with help from a Continuum Advisor, who knows the market, the various pension providers within it and who will get to know you and your own financial plans and circumstances.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation advice
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.
Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.
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