WAITING LONGER FOR YOUR PENSION

TODAY’S BLOG

WAITING LONGER FOR YOUR PENSION

The start of the next increase to state pension age (SPA) is still nearly five years away, at which point it will be phased up to 67 by April 2028.In the meantime, the Government has confirmed a rise in pension age for private pension provision that was originally suggested in March 2014.

THE NORMAL MINIMUM PENSION AGE – NMPA

The increase is to be made to the normal minimum pension age (NMPA). This is the earliest age from which non-state pension benefits can be drawn, subject to very limited exceptions. The current NMPA is 55, set in 2010 as 10 years below the then male SPA of 65. The new NMPA from 2028 will be 57, 10 years below what by then will be the SPA for both sexes.

57 IS THE NEW 55

The Government has indicated that there will be exceptions to the higher NMPA covering:

Members of the armed forces, police and fire services pension schemes, who will have a ‘protected pension age’ of 55;
Anyone who has a protected pension age for scheme benefits arising from the last increase in NMPA; and
Anyone who, on 11 February 2021, had a right under a pension scheme to draw benefits before age 57. In this context, the right has to be unqualified, i.e. there must be no requirement for consent from any other person, such as a trustee or employer. It will also apply on an individual scheme basis, so you might find some benefits can be drawn before 57, while others cannot because consent is required.

It would appear that if you have a personal pension established by the February cut-off date, you will generally meet the ‘unqualified right’ requirement, giving you a protected pension age of 55. However, some experts believe this could change when the necessary legislation emerges. When the previous NMPA increase was made, there was no such protection for personal pension owners.

Born between April 1971 and April 1973?

If you were born on 6 April 1973, you are potentially the worst hit by the change, unless you have benefits that are subject to a protected pension age. That is because you will reach your 55th birthday on the very day the NMPA increase to 57 takes effect – unlike the changes to SPA, there is no phasing in of the change. If you were born in the preceding two years, you will be in the odd position of being able to draw benefits at age 55 until 5 April 2028, but then need to wait until you reach age 57 before setting up any new drawings from you pension.

A realistic retirement age?

The idea of retiring at 57, yet alone 55 may sound appealing, but is it at all realistic? Consider these two factors for a start:

1. At age 57, the average man has 27 years of retirement ahead of him, while the average woman has 30, according to the Office for National Statistics. 1 in 4 of those men will live until age 92, the corresponding age for 25% of women is 94.

2. From 2028, there will be a gap of at least 10 years before your state pension starts. With the current state pension of £179.60 a week, that means an income hole to fill of at least £93,400 (plus inflationary increases).

A recent report showed that the average age of those ‘retiring’ in 2021 was 60. However, it also revealed:

37% had brought forward their retirement in the past year, with the three main reasons being pandemic related;
27% will work part time to support themselves in retirement;
37% were worried about not having enough money to last through retirement;
Two thirds of retirees risked running out of money in retirement according to calculations by the report’s authors, even though the planned average total spend was a modest £21,000 a year.

ACTION

The change to a normal minimum pension age of 57 is largely irrelevant – few people can afford to retire so early – but it might affect you if you plan to draw some benefits early, e.g. to clear a mortgage.

Are you sure your planned retirement age is not going to leave you among those two thirds who might run out of money before they run out of life? Thats the main purpose of proper financial planning – to help ensure that your funds do not run our before you do. The sooner you know where you are, the quicker you can, if necessary, make the necessary adjustments.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk
Call – 020 8542 8084

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

What is the truth about SIPPs?

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What is the truth about SIPPs?

If you didn’t read yesterday’s post, can I suggest that you do so. Click here to see it. The quickest route to a financial scam is to fail to read information. The Radio 4 programme suggested that the scam concerned meant that some people had pretty much lost their entire pension. So can I encourage you to simply give me 5 minutes of your time so that you have a few more facts about financial scams? This article assumes that you have heard the radio programme concerned.

SIPPs

Firstly, a SIPP (Self Invested Personal Pension) is not simply for the rich (as implied by the programme). There is nothing wrong with a SIPP they can be just as cheap as a standard personal pension. The main difference is that they can include unregulated investments. You may recall that this was supposedly what the public was clamouring for at one point – remember Gordon Brown back-tracking on being able to put residential property into a pension? Well that would have to be into a SIPP. A residential property is an unregulated investment too! We arrange SIPPs because they have a far greater range of funds – our main reason for using them is to access low cost funds (very low cost).

Risk Profiling and Risk Questionnaires

Any decent adviser will attempt to explain and assess your attitude to risk. This isn’t an easy concept. The best tool I know is the one I use for clients. The world-leading software from FinaMetrica, it’s a psychometric test and naturally rather more than “on a scale of 1 to 10..” Risk is relative and requires thought. Crossing the road is “risky” but rather more so if you don’t look or listen. Box-ticking is never going to do justice to a proper, contextualised conversation…. but worst of all is assuming that your attitude to risk is the same as your advisers…. almost certainly not.

Transferring Your Pension

Again, there is nothing wrong with this, but there needs to be a good reason to do so (or several). Moving an investment based pension to another investment based pension is pretty straight-forward, but there issues to consider carefully. In any event moving this sort of pension is called a pension switch (like for like), although often called a “pension transfer” in layman’s terms it isn’t. It doesn’t help that all the forms to do this are called pension transfer forms, or transfer packs and so to be consistent, advisers, myself included use the same term, but it is not what the regulator means by “pension transfer”.

A Real Pension Transfer

Moving a final salary or “Defined Benefit” pension is invariably unwise, but there are exceptions. We do not (and never have) moved these sort of pensions, these are called pension transfers, and these are the type that causes the regulator concern – for good reason – you would be giving up guarantees! In essence a pension transfer involves moving from a guaranteed arrangement into an investment (which fluctuates in value, so not guaranteed). On occasion, there can be good reasons to move though – if the original scheme is in difficulty or your own circumstances are a little unusual. This requires specialist advice, which we can refer. However, I would argue that historically pension transfers were done to generate commission for the adviser rather than benefit for the investor. However at times, a transfer might be suitable.

Valuing Pensions

Invariably we arrange investments of all descriptions and provide valuations. My own view is that the investor ought to be able to view the investment online and the data should confirm what we say. I also do not like lock-in’s. Any investment that is a little bit out of the ordinary will need an exit method. Many more complex, high risk and unregulated investments all have problems with exit. Normal, regulated funds do not, with the exception of property funds, which can have similar problems and are far from ideal for anyone seeking or requiring liquidity.

Fraud

There will always be people wanting to take advantage of you. These psychopaths (I cannot think of a more suitable term) have little remorse (if any) for the fact that this is your hard-earned money. People are always behind investments, never forget that, on both sides.

Celebrity Endorsements

Similarly, taking advice from anyone not qualified to provide it is a mistake that you really do not need to make in 2015 and beyond. Just because he or she writes about cars, finance, cooking or music or performs in films, does not make the product “good”. They are being paid to read a script. Most people would willingly accept a cheque for reading and smiling, my advice would be to never endorse anything that you have no genuine knowledge of. It is of course a very old “trick” of confidence.

Why does this happen?

Lots of reasons, here are 4.

Because people become fed up with their investments and don’t like the alternative of cash which is currently paying peanuts. There are a plethora of alternatives now, some are ok, but most are simply taking advantage of the generally poor opinions about Bankers and will just as easily take advantage of you (by which I mean deprive you of as much of your money as you are willing to hand over).
Because they are short of cash and being desperate will raid the future to pay for today
Because they have been duped by people implying trustworthiness, but actually have no accountability or relationship
Because financial stuff is pretty dull and full of jargon and its a lot of effort to read and not many people want to pay for advice, particularly if that advice doesn’t deliver the news that they want to hear.

The good news is that your investment experience does not have to be like this, however you do need to remove emotion from your investment strategy (easy to say) and also retain discipline. Investing is life-long, certainly not just for Christmas.

Want more? I suggest you get my free downloadable report about pensions.

Dominic Thomas
Solomons IFA