It’s time to rethink retirement and how to plan for it
With an ageing population, an increasing retirement age and less certainty in what to expect from your pensions, it could be a good time to review what you want from your later life.
We’re all getting older and more to the point living longer. Partly because of this, retirement in the traditional sense is becoming an endangered concept. The traditional concept of retirement came into being at a time when life expectancy was short and most people did not live long enough to enjoy it.
However, with the retirement age rising and many people finding themselves unable to afford to stop working, the whole concept of retirement needs to be re-examined.
When the pensioners of today were still in the workplace, their retirement was fairly well mapped out for them They knew at what age they could retire and would almost certainly retire when they reached that point. Many also knew they would receive a guaranteed income from their employer’s Defined Benefit (DB or final salary) scheme.
In other words, there was plenty of certainty and not much in the way of actions to take or decisions to be made on their journey to retirement.
That scenario has changed and will continue to do so as the boundary between work and retirement is becoming much less clear, with more of us working well beyond the state pension age – either through necessity or choice. The traditional concept of ‘retirement’ has almost certainly changed for good.
This has been hastened by the scrapping of the default retirement age in 2011 and recent increases in the State Pension age – set to rise again to 67 between 2026 and 2028. In addition, we have seen some radical changes to pension policy, most notably the introduction of the 2015 ‘pension freedoms,’ which allow savers to access their pension pots from age 55 and give them greater flexibility and control in how they use those funds.
The move away from final-salary pension schemes, which have been replaced by Defined Contribution (DC) schemes has also speeded the process. With DC schemes, much of the investment risk and responsibility is down to individuals.
The effect of all these changes has been to bring an end to what used to be a very structured framework for retirement, where savers had a lot of certainty and not many decisions to make.
Instead, savers are now faced with having to take a far more active approach to planning their retirement, with fewer certainties and very little in the way of guarantees. On the plus side, they do have a much bigger say in how and when they retire, from the beginning of their savings journey right into later life.
This means savers and investors need to think much harder about where they want to go and how to get there. For example, some may be thinking about starting a new business in later life whilst others may want to continue to work part-time. Taking on rewarding unpaid work might be the goal for some, or you may think about going travelling, finally doing that world tour.
Alternatively, you may just want to have the opportunity later in life to make your own choices, depending on your circumstances and ambitions at the time. Because at a younger age, you might not be clear about what your long-term goals are other than that you will want some freedom and choice later in life. Which is one of the reasons why getting expert pension advice is so important for today’s savers and investors.
With the responsibility shifting increasingly to individuals to plan their later lives, the onus falls more on you to make the important decisions along the way, such as the best mix of assets and products to invest in to achieve your goals. And you may well benefit from some help with that process.
Pensions will remain a key part of your long-term plans, not least because of their tax efficiency and, for many, employers’ contributions. But other assets, such as Isas, investments and property, will also have a major role to play in any diversified portfolio.
A financial adviser can help you ensure that enough is being saved, whatever your dreams, that your plans are on track and that you are giving yourself the best chance possible. A financial adviser can also help you work out what you can afford to save and the most tax-efficient way of helping you achieve a comfortable retirement.
So why not take control of your future and give yourself choices in retirement? Contact us today.
Pension investment funds and the income from them may fluctuate and can fall as well as rise. Eventual retirement income will depend on the size and value of your pension pot, future interest rates and tax legislation. Tax treatment is dependent upon individual circumstances and may be subject to change in future.