Life & Culture

Personal Finance: Review your pension


Retirement at 65 is becoming a thing of the past. Major changes are under way and you need to be prepared.

At the moment, the state pension age is 65 for men and 60 for women. From next year women’s pension age will rise gradually to reach 65 in 2020. By 2026, pension age will increase to 66 for everyone and keep rising thereafter. The Conservatives have proposed establishing a review to accelerate this timetable, bringing men’s state pension age up to 66 in 2016 and for women by 2022. Any men over 59 and women over 54 will be affected.

What are the implications? Clearly, the state pension cannot be relied on. Even at relatively short notice, the government can change the starting age or the level of pension. This increases the importance of your own private retirement savings. It also means you may not be able to stop work altogether at any specific age.

If the proposed changes do occur, they could pose particular problems for some older workers. If you are in your late 50s and have already planned your retirement date, you would have to save more, or plan to keep working longer, to make up for the loss of the state pension. I estimate you will need to save at least an extra £60 a month for the next seven years to provide the additional income. Also, be aware that some private pension policies do not allow you to change your retirement date without a penalty, so check carefully with your provider.

Alternatively, you could save more in an ISA instead of a pension. Fortunately, from this month, the government has increased the annual ISA allowance. Anyone over 50 can now save £10,200 a year tax-free (half of which can be in a cash ISA if you wish), instead of the previous £7,200 limit. Once again, though, it is important to check that your ISA provider is offering good rates. There are some very poor deals at the moment, so do shop around.

The reality is that we will need to save more if we want to have enough to live on in future. Saving more is very important, but 18 pensions ministers, umpteen policy changes and then the credit crisis have undermined our retirement savings culture. We have had 12 years of missed opportunities while our pension system has been falling apart.

I really hope that any future government will make sorting this out one of their top policy priorities. Hopefully, any review of pension age will consider a much broader set of issues, including annuities and part-time work in later life, in order to put us back on a sustainable path.

Even if we improve our pension system, though, longer working lives are inevitable. Most people are not old at age 65 any more, so adjusting retirement expectations is essential in order to supplement pension income and ensure a better later-life lifestyle.

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