What you may have heard about Pensions
The retirement landscape has changed significantly over recent years. After wide ranging changes introduced via pension freedom, from age 55 onwards, you can now access your pension in more ways than ever before. Here we discuss some of the issues you may have heard or read about.
My State Pension may not be enough
The increase in average life expectancy over recent decades has put pressure on the ability of the state to provide the level of pension income most people would like to retire on.
The basic State Pension is a regular payment from the the government that you can get if you reached State Pension age before 6 April 2016. You can find out more information on the gov.uk website.
The State Pension has changed
You may have to consider working longer to fund your retirement.
A new single tier flat-rate has been introduced by the government which you can claim if you reach State Pension on or after 6 April 2016. This will apply to men born on after 6 April 1951, and for women born on or after 6 April 1953. You can find out more on the new State Pension on the gov.uk website.
I may have to work longer
Retirement can last for 30 years or more depending on when you retire and how long you live. Along with the rise in the age at which you can receive your State Pension, you may have to consider working longer to fund your retirement.
Some companies are closing their final salary schemes
Over the last few years many companies have closed certain types of pension schemes. These schemes, known as final salary or defined benefit, promise to give you a guaranteed pension primarily based on your salary and the number of years in your employer's scheme.
These types of schemes are becoming more expensive for employers as a result of volatile stock markets and increasing life expectancy.
As a result, new members will be offered access to a money purchase scheme where the contributions are paid by the individual (and potentially the employer) and the investment risk switches to the members. Existing members in a final salary scheme may still remain in that scheme or be required to change to a money purchase arrangement.
All employers in the UK will have to meet the government requirements to help their employees save for retirement – with the rules applying to large employers first, and smaller employers later, as set out by the government. Whether you are entitled to a workplace pension will depend on your age and earnings. Your employer is required to give you details about the new ‘auto-enrolment’ rules when they apply to them.
So if you’re employed, and your employer hasn’t already told you about auto-enrolment (and you’re not already a member of your employer’s company pension scheme) you may want to ask them about when auto-enrolment will apply or for details about their scheme and if you can join.
The government’s workplace pensions website is a good place to find out more about automatic enrolment.
Pension funds have not performed well recently
Most pension funds depend on stock market returns and fluctuations in the stock market can have an effect on the value of pension funds.
This means that the value of the fund can go down as well as up throughout the time you invest in a pension fund. Pensions are intended to be long term, so the earlier you start investing, the more likely it is for the fund to grow. However, there is always the chance that you may not get back what you put in.
I should prepare for my retirement as much as possible
It's true that these days, more and more seems to be written about retirement and the need to plan for it. Newspapers and governments have brought to our attention the fact that we may not simply be able to rely on the state to provide for us when we retire.
Instead, with increasing average life expectancy, we should be planning early, and looking at other ways of providing an income when we stop working.
There are changes to the way I can access my pension savings
With the introduction of pension freedom it now means that, from age 55, you now have more choice over how to access your pension savings. If you are approaching retirement, you should take some time to see how the changes impact you. The normal minimum pension age is to increase from age 55 to age 57 in 2028.
Pensions and living longer
Now that people are living longer in retirement, how does that impact your pension?