Retirement as a subject seems to be cropping up in the news for all types of political, social and economic reasons. Mexican billionaire tycoon Carlos Slim has called for a three-day working week offset by longer hours and a later retirement age of 70 to improve quality of life, increase productivity and help governments afford Social Security payments.
In the UK, George Osborne has been putting more flesh on the bones of plans announced in the March budget to increase the flexibility of accessing pension benefits. From April 2015 people will be offered free, impartial ‘guidance’ delivered by the government through charities like Citizens Advice and Age UK.
Interestingly, in Australia they are consulting on whether to implement compulsory annuitisation in a bid to mitigate the longevity risks of allowing people to drawdown any amount from their pension pot. Two approaches as far apart as their time zones at this point!
Individuals will all have different financial situations and lifestyle goals when they reach retirement but they should ask themselves these sorts of questions:
Do I really want to stop work? How much income/capital do I need to meet my expenditure requirements? Is it beneficial to consolidate all my pension plans? How much will my State Pension be? Can my other assets produce an income? Do I need an income that keeps pace with inflation? Is it important for me to provide a pension for my dependants? Is Inheritance Tax planning a priority for me?
The Chancellor has promised the delivery of the ‘financial guidance’ online, on the telephone or face-to-face, if requested. Indeed, as a starter one could look at the 32 page document provided already by the Money Advice Service (MAS) which explains the options to take pension benefits at retirement.
The proposals in the March budget caught the entire financial industry off-guard and no one knows what future impact they will have on the industry and individual behaviour at retirement. The hope is that annuity providers innovate and create new products, the financial literacy of the population increases and people are better equipped to make arguably the most important financial decision of their lives after potentially 40 years of work. They will certainly have control and flexibility. Some argue it is a lot to ask for folk to firstly read the information, then understand their options and finally take action to implement a financial decision that has implications for the rest of their life. Pension legislation has become fiendishly complicated of late with over five hundred rule changes since ‘pension simplification’ was first mentioned and subsequently introduced in 2006.
My own thoughts (I am clearly biased!) are that anyone approaching retirement with anything other than the most basic financial situations should first seek advice from a competent and qualified Certified or Chartered Financial Planner as an initial discussion is usually at no cost.
RMT Ref 75/08.14/SL