Rising State Pension age – how to protect your retirement
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
Average life expectancy in the UK continues to grow in 2023, albeit at a slower rate compared to other G7 countries. In 2020, a 65-year-old male could expect to live another 19.7 years; or 22 years for a 65-year-old female. Whilst it is certainly welcome that people in the UK are living longer, one unfortunate byproduct is that this has played a key role in governments deciding to increase the State Pension age.
At present (2023) the State Pension age for men and women is 66. However, this is set to rise to age 67 between 2034 and 2036. Later, it is expected to increase further to age 68 between 2044 and 2046. For younger people falling within these latter two brackets, these planned changes could have a big impact on their retirement dates and lifestyles.
Below, our Grantham financial planners explain the implications of the rising State Pension age for younger people. We also offer ideas about how to protect your retirement goals. To discuss your own family financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
info@casfin.co.uk
Will I be affected?
It is difficult to answer this definitively for younger people. Government policy is subject to change. For instance, it was previously thought that the State Pension age could rise to 68 in 2035. However, the government has now announced that this will not happen until after 2044. Many 56-year-olds will, therefore, be breathing a sigh of relief!
However, in light of the uncertainty, for many people (e.g. those 56 and younger), it may be best to assume that they will start receiving their State Pension a year or two later than the 66-year-olds in 2023. If this does not happen, then you could enjoy some additional retirement savings (e.g. for a nice holiday). If this does transpire, then you are better prepared.
Why does the State Pension age matter?
The full new State Pension is a tremendously powerful “pillar” within an individual’s retirement plan. In 2023-24, it offers £203.85 per week (£10,600.20 each year). This is set to rise by 8.5% in April 2024 due to the “triple lock” system, which guarantees that the State Pension rises each year to help preserve its spending power as living costs rise. The State Pension, once claimed, provides an ongoing income until the individual dies – providing a high degree of financial stability in retirement independent of investment performance.
Delaying the accessibility of the State Pension by a year or two, therefore, has big implications for an individual’s retirement planning. For someone wanting to retire at 66, it potentially means setting aside another £21,200.40 (or the future inflation-adjusted equivalent) in independent retirement savings which otherwise could have been provided by the State Pension.
What are my options?
For some individuals, the thoughts of possibly retiring a bit later – 67 or 68 – may not be too concerning. Perhaps they love their careers and would be happy to continue working even beyond these ages.
However, it is important to acknowledge that your priorities, goals and circumstances may change in the future. Maybe you face a decline in health, motivation and energy levels in your 60s. Indeed, many jobs become physically demanding in later life (e.g. policing and teaching). You may wish, at this point, that you could retire earlier.
Ultimately, financial planning is about helping people achieve their financial goals and independence – opening up more options where possible. Therefore, we would normally encourage people to focus more careful attention on their pension plan early on – rather than leaving this until later, when it may be more difficult to make the necessary contributions.
Unfortunately, a higher State Pension age does potentially mean saving more out of your own pocket for retirement. However, younger people do have one distinct advantage to counteract this – time. By starting a healthy habit of pension contributions early on, your retirement savings have more time to benefit from the power of compound interest.
Here, it can help to work with a financial adviser to ensure an optimal pension investment strategy. For instance, some workers may be contributing to a workplace pension but they have been placed on a “default” portfolio option. However, this may not be appropriate for certain investors who may be better suited to a more “aggressive” (or “cautious”) strategy.
A financial adviser can also assist with other areas of pension optimisation. For instance, a professional can help you with selecting a suitable range of funds for your portfolio. Perhaps this can be achieved within your workplace scheme. For some people, this could involve setting up a personal pension to widen the range of fund choices.
As time goes by, your financial adviser can also provide regular reviews of your pension strategy to ensure that everything is staying on track. Periodic adjustments – i.e. “portfolio rebalancing” – may be required to ensure that your asset allocation continues to reflect your goals and risk tolerance.
Invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
