Private pensions to become more important as UK raises pension age sooner than planned

News - Savings

Written by Ray Clancy

Thursday, 21 October 2010 10:31

Everyone, especially higher earners, need to re-examine their pension provisions in the UK after the announcement that the retirement age will increase to 66 from 2020, earlier than planned.

‘The announcement reinforces the need for each of us to make provisions for our own retirement. This need is all the more crucial given that we have an ageing population,’ said Catherine Penney, vice president of Barclays Stockbrokers.

‘By making regular contributions to personal pensions, included self-invested ones, and ISAs, confident investors can build up savings to supplement their core pensions and provide them with increased flexibility to move to part time working in the run up to retirement or potentially to retire ahead of the age of 66,’ she added.

Many experts believe that the increase will result in higher private pensions. If people also choose to delay taking their private pension by one year, as many will do, they may see their private pension rise considerably, according to Standard Life.

It says that by delaying retirement by just one year, a 45 year old man saving £200 a month could increase their private pension by nearly 10%. ‘Delaying retirement by a year is sensible for private pension savers,’ said Andrew Tully, senior pensions policy manager at Standard Life.

Although today’s cuts make it even harder to put anything aside for the future, consumers can no longer ignore the fact they need to have a retirement income, according to Karen Barrett, Chief Executive of unbiased.co.uk.

‘Over the last the last three years retirement planning has been the biggest driver for those seeking expert advice from an independent financial adviser. Last month alone, almost half of people searching for a local IFA were looking for help with their personal retirement planning and we expect this demand to continue following this announcement,’ she explained.

But the increase in state retirement age will have little relevance in 2020, according to Friends Provident. It says that retirement is rapidly becoming an outdated term as many Britons do not want to stop working at an arbitrary age.

‘The definition of old or retired has evolved and by 2020, the face of retirement will look completely different from the one that we have become familiar with in recent years. People are living longer and this new breed of energetic and healthy individuals want to remain involved and not become economically inactive,’ said Trevor Matthews, chief executive officer of Friends Provident.

‘But people need to be aware of the reality of working longer. As a nation we should start seeing retirement as a process in our lives and not a one off event. Actively saving now for tomorrow will have a far greater impact for individuals come 2020 than yesterday’s proposals,’ he added.

The role of private pensions will become more important and we should not lose sight of the fact that private pensions can still provide retirement income from the age of 55, according to NFU Mutual. There is also still time for people to grow retirement income before changes, it points out.

‘This rise in the State retirement age makes private pensions all the more important for people who want to enjoy a longer retirement. It’s never too early or too late to start investing in a private pension. And, with changes coming into effect from 2020, there’s still plenty of time to build a substantial pension pot,’ said Shelagh Hamer, pension expert at NFU Mutual.

‘Anyone looking to scale back their work commitments before they receive their State pension can still start drawing a private pension from the age of 55. People with private pensions will still be able to access their State allowance once they reach State retirement age,’ she added.

Read our International Pension Planning guide to find out more.