The way people view their retirement and how they fund it is evolving.
There is now an expectation that we will live to 100 years old, as highlighted in a Telegraph report recently, so how do you prepare yourself for a retirement which could last as long as the period you worked for?
There is also some disparity over what people expect to receive in retirement. 12 months ago, Old Mutual Wealth conducted a survey, with YouGov Plc reporting that the average UK retirement income had reached £19,700 per annum. Yet prior to this, Prudential reported that for people intending to retire this year, the average retirement income (including the State Pension) was expected to amount to around £17,700 per annum.
Those reaching state pension age and retiring from April 2016 onwards will become entitled to the new State Pension, currently set at a maximum flat rate of £155.65 per week, but a quick calculation shows that this falls some way short of the averages quoted above.
So how will this gap be bridged?
The YouGov survey reported that over half of respondents already in retirement are receiving an income from a final salary pension scheme, but this falls to 37% for those who have yet to do so. This is indicative of the increasing shift by employers away from so called ‘gold plated’ final salary pension schemes and moves to automatically enrol millions of workers into a workplace pension scheme, albeit less beneficial ones than enjoyed by many previously.
Many could bridge their income shortfall by remaining in work (assuming that work can be found), but if you plan on continuing to work and have multiple sources of retirement income, how do you assess whether your finances are tax efficient? In most cases the State Pension isn’t taxed, but is potentially taxable, so seeking professional advice could help here.
Many have taken advantage of the pension freedoms introduced by the Government in April 2015, and in the first 12 months it’s reported that over 230,000 individuals flexibly accessed their pension savings. Caution is required though, as usually only a quarter of the funds taken are free of tax with the rest potentially being subject to tax, sometimes at an emergency rate. In the first three months of 2016 HMRC report that they have processed over 10,000 tax repayment claims, totalling almost £25 million in overpaid tax.
Recently, the Bank of England’s Chief Economist was reported as claiming that he; “can’t make the remotest of sense of pensions” and figures from Pension Wise (the Government’s free and impartial pension guidance service) seem to back this up, as they have had over 2million visits to the website and held over 50,000 appointments with the over 55’s.
Many people may rely upon the information provided to make decisions that could impact their financial circumstances for the remainder of their lives, so it’s important to note that this is guidance and does not constitute advice, which is regulated.
Those who see a financial adviser generally feel that the advice received tangibly benefits them, primarily because the adviser is focussing on their specific retirement objectives, whilst taking into account their personal circumstances, including their tax position.
Seeking professional financial advice can offer many the peace of mind that their finances are efficient and that their financial goals are on track, so if you are baffled and feel that you could benefit from advice you should contact one of our Financial Planning Consultants to arrange an appointment to discuss your retirement needs.
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