Are you thinking of taking early retirement later this decade, or in the 2030s? Are you looking forward to taking your pension at 55, and settling back to watch your grandchildren grow up while you are still in rude good health?
If so, there are things you need to be aware of, because the minimum age that you can take your pension is actually rising from 55 to 57 in 2028.
The worst part is that most of us aren’t aware this is coming.
In fact, according to recent research published by the Pensions Management Institute (PMI), four out of five (82%) of working people in their forties, who will be among the first to be impacted by these changes, had no idea they are in the pipeline.
The government responded saying they announced this way back in 2014, giving people 14 years to get their heads around the rise in the retirement age. Well, they must have whispered it, because clearly, it hasn’t worked.
To sweeten this bitter pill the government originally gave people the option of transferring their pension savings into schemes that would not be affected by the new two-year rise in the pension age – by giving them so-called ‘protected pension ages’. However, just last November they shut that window without notice.
Now, the only professions allowed to keep the retirement age of 55 will be those in a public service pension scheme, such as firemen, police and armed forces, and those who are members of certain private sector arrangements.
People in their forties face another major challenge
They were the first generation to enter the workplace during the demise of the very generous ‘gold-plated’ final salary pensions, which guaranteed you a certain level of income in retirement.
Most were put in defined contribution (DC) pension schemes, where you knew how much you were putting in, but not how much you would get out in the end.
Then came the recession of 2008-2013, which hit them during their prime saving years of 28-43, forcing many to put their pension saving on hold at the very time when they should have been building the spine of their retirement income.
No surprise, then, that the International Longevity Centre (ILC), in their report ‘Forgotten Generation? Retirement Income prospects of Generation X’, predict that a third of those in their forties today run a real risk of retiring with insufficient incomes.
Then along came the Covid pandemic
This has affected every aspect of our personal and working lives – and pension saving is no exception.
As the government struggles to recoup the huge costs of the furlough scheme and other Covid interventions, they have suspended that part of the pensions triple lock which would have guaranteed a generous increase in the state pension of around 8% this year.
The rise will now be less than half that, at 3.1%. Meanwhile inflation reached 5.4% in December and is expected to hit 7% in April, so that the state pension will fall well behind rising inflation too.
High inflation also affects you if you are considering buying an annuity with your pension savings. As you know, an annuity turns your pension lump sum into a guaranteed monthly income for life. As such, it takes away any worry you might have of running out of money, and gives you the comfort of knowing how much is coming in each month.
However, due to the dangers of inflation, it’s crucial to take advice about the different types of annuity on the market.
A ‘level annuity’ pays a fixed rate, but does not protect your money against inflation over time. However, inflation-linked annuities are available that will help protect you against the ravages of inflation.
In its research into the level of knowledge about upcoming changes in the pensions rules, the PMI found not only that just 4% of us know the current retirement age, but that just 14% of us have spoken to a financial adviser about planning our retirement.
If you know of others who may benefit from some guidance of these pension rules, then please forward this to them – we’d love to help!
*Article published early 2022
This article was prepared by AdvisorStream and is legally licensed for use by AdvisorStream.