As expected, on the 5th Dec 2013 Mr Osborne laid out plans to increase the state pension age, yet again, to 69 by the mid 2040’s. Those of us in our twenties right now face a state pension age of 70 or even beyond.
With the link of state pension age to life expectancy now firmly established, it would appear that this trend is set to continue for as long as we keep on living longer.
What this means for individuals is a state retirement date which is now uncertain and out of their control. The days of a “fixed” state pension age that we can all plan towards are truly over.
This leaves clients with two choices:
- Simply retire at whatever age the government of the day decides to implement as the state pension age or:
- Make additional plans to retire at an earlier selected date.
For those that choose the latter, high quality planning will be vital to secure the retirement they have dreamed of. Unlike in past years, simply setting up a pension and forgetting about it may not be the best solution. A modern retirement plan should consist of a variety of assets, which can be drawn on in different ways during what could now realistically be a 30 or even 40 year retirement.
Individuals may wish to consider taking a more holistic view to their retirement planning which could include income from a variety of different sources.
ISA’s for example can generate a tax-free income in retirement as well as tax-free capital gains on encashment. Those who diligently make full use of the ISA allowance could find themselves able to generate a large amount of additional income in retirement.
Property can also be a healthy source of retirement income and capital whether this is held via a fund or directly.
What the above two potential sources of income in retirement both share is flexibility. They are not subject to the same level of rules and regulations that pensions are and as such give the individual far more control. By having a selection of different investments from which to draw your retirement income, you give yourself the flexibility to decide both when and how you retire.
While pensions provide generous tax relief and should form the foundation of most retirement plans, they do come with a potential downside. The age at which you can draw retirement benefits is set by the government (currently at 55) and this could be changed by future legislation, just like the state pension age.
By having a selection of retirement planning vehicles you mitigate this risk and put yourself back in control of your retirement plans.
