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The retirement of the future – how will it look and how can you make the most of it?

Friday, January 8, 2016

Fifteen years from now retirement will be a very different experience from the one our parents and grandparents had. The good news is that new freedoms have made pensions a very flexible way to save for the future.

Our guide to retirement in 2030:

  • Pensions will become much more flexible
  • The State Pension age will increase
  • Planning now will enable you to have a comfortable retirement

If you‘re in your 40s or 50s then retirement might still seem a long way away, but putting plans in place now could give you the ability to choose when and how you want to retire.

For example, you might not want to retire completely, choosing instead to continue to work part-time, or you might want to withdraw part of your pension and then dip into it later as and when you need it.

How old will I have to be to qualify for pension payments?

For many years, the state pension age for men was 65 and the state pension age for women was 60. The government has announced changes so that from 2020 both men and women's state pension age will be 66, increasing to 67 between 2026 and 2028, and then linked to life expectancy after that.

The government has said that it will review the state pension age every five years after that.

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What changes to pension legislation will affect me?

For many people, the biggest change to pensions is that they are no longer forced to turn their pension cash into a fixed income for life, known as an annuity. Instead they can dip into their pension fund and take out cash as and when they need it.

The new rules allow them to take 100% of their pension in cash if they wish to do so, although this is unwise because it would land them with a potentially large tax bill.

Under the new rules, you are allowed to:

  • Take 25 percent of your fund tax-free and leave the rest invested
  • Withdraw 100 percent of your pension money if you wish (but watch out for tax)
  • Take some of your pension when you need it - known as 'income drawdown'
  • Buy an annuity - this guarantees a fixed income for life but is irreversible

How can I plan for the future?

“For anyone within 15 years of retirement they need to think very carefully about what they wish for in the future when they intend to finish work,” says independent financial adviser Philip Pearson [director of P&P Invest].

“Relying upon the State for your income in retirement is not an option which most people would wish to look forward to,” he explains.

“Take stock of where you are now financially and what your objectives are for your retirement. If interest rates remain low over the long term then this will have a devastating effect upon the amount of income available from a Pension Plan.”

He suggests you set an ideal date when you wish to finish work, consider carefully how much income you will need in today’s terms at that time and review your existing savings and investments. It’s a good idea to review your plan each year.

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