Just When Can I Retire?

There is probably a significant difference between when individuals want to retire and when they can realistically afford to retire. Setting aside the usual back-up plans that we all share, winning the lottery, then everyone should take a bit of ownership and start planning as early as possible.

With the introduction of auto enrolment and subsequent re-enrolment there are greater number of individuals saving towards retirement than ever before. Official statistics advise over 6 million people have now been auto enrolled and with minimum contributions set to rise in April 2018 and April 2019 there has to be some optimism that as a country we are heading in the right direction.

Not everyone will embrace auto enrolment due to suspicions around pension saving in general and previous headline horror stories. This will mean that some will exercise their right to ‘opt-out’ of any company pension provided and unfortunately many of these people will be the very demographic of the population that the government want to target and encourage pension saving.

Employers have an opportunity to really assist their staff and provide some form of basic pension education. This can take the form of lunch and learn sessions, pension clinics or even tailored presentations, all of these formats will work better than written communications that may not be read or understood. By receiving financial guidance in simple to understand language, it will help the employee to picture their own financial position in a way they can relate. What age they can possibly retire and how much will they receive are common questions raised alongside thoughts on previous pensions and contribution levels.

When we provide pension presentations or deliver a day of pension clinics we find that even the basics such as, what options are available at retirement, how do they access their funds and what happens to the funds if they die, form the basis of information most valued by employees. They very rarely have the desire to hear about the pension industry since the late 1800’s or the complexity of auto enrolment rules, they simply want to understand what a pension means for them and what will it cost to be included now.

The message for pensions is very clear, the longer someone has to work until their expected or desired retirement age, the better chance they have to plan and save enough to realise their aspirations. No adviser has a crystal ball so all pension projections will be provided as per government guidelines but one thing is obvious, the more an individual saves and the earlier they start making that savings then the greater funds they will have closer to retirement. The greater the size of their pension fund then ultimately the more control they will have over what age they stop working and how much income they can access.

With the government recently confirming they want to amend the State Pension Age to age 68 earlier than originally intended, it will now be moving from 66 to 67 and then 68, the later change effecting everyone born between 1970 and 1978, other means will have to be found to help provide retirement income if anyone has aspirations of retiring earlier. This will also have an impact on access to private pension funds as this is scheduled to remain 10 years earlier than state pension. Currently private pension funds can be accessed from age 55 onwards however, this will move to 57 in 2026 and then to 58 in 2039 should the change be ratified through parliament.

Individuals should never shy away from the fact that the more they pay into a pension, especially one that also receives an employer contribution, the more flexibility and choice they will have when they are older. Paying into a pension or increasing contributions may cost less than imagined so we would encourage you to speak with a financial advisor or if you are a business who would value receiving some guidance for your staff then we would be delighted to hear from you.

For more information contact Richard Petrie, Employee Benefits Senior Manager, or contact us here.