Like a carrot on a stick, the State Pension seems to never be in reach for many of us. Radical proposals put forward by a think-tank to move the State Pension age to 75, seem…well, radical.
The proposals coming from the think-tank chaired by Iain Duncan-Smith plan to do this within 15 years, but wait for it, the government has committed to provide 10 years notice to individuals who are affected by changes.
In ten years, a pensioner would somehow have to shift their retirement plans and allow for such a radical change to their retirement income? How might a pensioner propose to find £8,000 per year for seven years in such a short time?
Currently the State Pension age is set to rise to 66 in 2020, 67 between 2026 and 2028, and 68 between 2044 and 2046, but the above proposals would be in place by 2035.
Now we can argue, it’s a think-tank and it’s a strategy to have you accept a better proposal when it arrives by stretching your views today, but for sure it spells out a direction with the State Pension.
The first state pension was paid out to those aged 70 or more in 1908 when the life expectancy was a further 9.3 years for a female, and 8.4 for a male. In 1940, it was set at 65 for males, and 60 for females, and has gradually been rising since.
The demographics are a tad puzzling. An infant born between 2015 – 2017 was expected to live to 79.2 for a male, and 82.9 for a female. Having paid National Insurance contributions for potentially 55 years to receive 4.2 years of a pension seems somehow to be a bit of a bad deal, in fact making it the worst State Pension age in the EU, the vast majority of which sit close to or less than the current UK State Pension ages.
Let’s remember last year, the UK’s State Pension was placed the worst in the world by the OECD, behind Mexico with a pension at 29% of pre-retirement earnings with the Netherlands at the top paying 100.6%.
If you were marketing the UK’s State Pension in the private sector I’d say you wouldn’t have too many buyers.
I remember thinking I was being scare-mongered thirty years ago when I was told ‘just treat it as a bonus, and forget it exists’.
Naturally, the State Pension age doesn’t affect the age you can actually retire at, you simply need to be able to fund that yourself, which is probably what the think-tank is urging people to do.
It seems very strange to consider the above moves especially after removing tax relief for a mortgage on a second property, putting such pension planning further out of reach for many.
What can you do? There are a range of options for you to consider such as buying another home to rent out and / or maximising your company pension scheme contributions, but for those with personal pensions subjected to the current mental market volatility, it creates a significant worry.
You may remember a column I did a few months back where I simply compared the performance of the top private pension versus the lowest pension. It showed the best performer over just twenty years would provide £407 per week, whereas the lowest was £91.
That is over just twenty years, let alone the term of a pension which could be as much as 55 years.
Given the supposed complexity of pensions, many people have been apathetic at studying how well their pension is performing, leaving it to ferment in yesteryears ‘good’ pension, but the above figures speak for themselves.
Charges are also a key item to look at. Many older schemes had horrific charges, so having your scheme assessed to ensure you are paying a fair charge is vital.
Similarly, many pension schemes float with the tide with excess risk. An adviser should ensure you are keeping your investments close to the efficient frontier curve, meaning simply, that you receive the return for the risk you are taking, or that for the return you want, your money is taking the least risk.
About the author
Peter McGahan is Chief Executive of Independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority.
For a complimentary appraisal of your pension, please call 01872 222422 or visit WWFP.net.Last modified: June 10, 2021