After much deliberation the Government has, for now, put aside its plans to meddle with the current pensions tax relief system. This, however, does not mean, that there isn’t still much to consider when pulling together the ultimate retirement plan.
The hot pensions topic of the moment, are the major changes to the state pension which kick started this month. The reforms will affect anyone due to qualify for the state pension on or after 6 April 2016. This is when, the basic and additional state pensions will be replaced by a flat-rate, single-tier state pension. The state benefit, if paid in full, will see pensioners receive £155.65 per week, reflecting a £39.70 weekly boost in income compared with previously. To qualify for the benefit, the retiree will have had to have made at least 35 years of national insurance contribution or provide evidence of tax credits received for child-rearing or being a carer during their working years.
Unfortunately, further changes to the state pension will see the retirement age for women increase at break neck speed. It rose from 60 to 62 in April 2015, will rise further to 63 from April 2016 and from 2020, just four years’ time, the retirement age will increase to 66 for both men and women, resulting in women having to work for an additional three years compared with now. Men will have to work an additional one year before they can draw their state pension.
The joint male and female retirement ages will then increase at a fair pace to 67 between 2026 and 2028. It will be linked to life expectancy after that.
The women most affected by the changes were born in the 1950s and it has been reported that millions of women will be up to £12,000 worse off as a result. With this in mind it’s clear that no one can fully predict what additional changes future governments will make to the state pension. It has never been more important for the future generations of retirees to ensure that additional saving plans are put in place now in preparation for retirement.
The new single tier state pension will provide retirees with an income of £8,094 a year. Undoubtedly a sizable chunk of cash, but it will unfortunately fall well short of coming anywhere near to an adequate income. A good standard of living in retirement will require careful financial planning throughout the course of an individual’s working life.
Retirement planning can often feel like a constant battle, with the Government continually changing the goalposts with regard to pensions. It, feels like an impossibility for savers to plan accurately. The right guidance and advice will ensure that individuals are in the best possible position to adapt their savings plans accordingly.