ISAs Maximising ISAs is an increasingly important tax planning area…
We seem to be having the same pension headlines in the news again and again; “Millions will have to wait longer to get their state pension”.
The original plan was to increase state pension age from 67 to 68 between 2044 and 2046 – now there are plans to bring this forward to between 2037 and 2039. The DWP has put the move down to necessity due to the increasing financial burden of paying out the state pension to retirees who are living longer in retirement. The recent proposals will mean that around 6 million people in their 40s will need to wait or work longer before they can draw their state pension.
For many retirees the state pension forms a basic reliable amount of pension income which enables them to cover the necessities in retirement. The later state pension age will mean paying more contributions and missing out on pension payments. The financial effect is that this is going to cost thousands of pounds more for the younger generations. My own state pension age is now 6 years later than my sibling who has only managed to clock up a 10 year working life and is now retired. Whereas, once I reach retirement (hopefully) I will have clocked up around 45 years of work and contributions !
So the State Pension age keeps rolling into the distant future. Recently, I’ve advised clients who have been effected by the earliest changes – the 65 to 66 move and when you’re not in good health or you’re in an extremely stressful occupation, even this one extra year can seem like an eternity. In the future, some people will be working and paying an additional 8 years of contributions and this will affect their retirement plans even more than today’s up and coming retirees. It strikes me that having your own pension arrangement provides you with a lot of flexibility when it comes to timing and arranging your retirement benefits and it can now be used flexibly to fit in with state retirement dates and/or final salary arrangements therefore sometimes allowing an earlier retirement or part retirement. This might be a very important factor for those suffering stress or who are in poorer health as it allows some ability to take control of their retirement.
If you have a reasonable time frame to retirement for making contributions into your own pension you should try to build up your pension. Pensions offer tax relief on your contributions and tax efficient investment growth and are probably the most tax efficient investment you can make.
For those looking for a little solace in all this bad news I did find an intriguing article in the press a few weeks ago which sheds a glimmer of hope on the whole situation. A recent report from the TUC on the rise of robots and AI has suggested that the gains made from higher productivity could be used to stop planned increases in the state pension age. According to the TUC, we are going to benefit from a boost to national prosperity but we need a debate about who benefits from this wealth. There’s also been a similar suggestion of taxing robots and AI which could boost the coffers. Time will tell how this will play out – but I suggest it’s not going to happen soon so relying on your personal pension rather than the robot might be the best course of action for now.