Most of us know to some degree what we want from our retirement. Some of us will spend the majority of our working years with a fixed date in mind and will build our short- and long-term financial plans around that circled square on the calendar. Others will have a much vaguer picture of their futures but, in all likelihood, will have in mind some cut-off date at which they want to be free from work.
Then again, a shaky economy and escalating cost-of-living crisis over the past few years have pushed many toward pessimism. It’s very difficult to feel confident about a plan made after so many years of volatility, not just in terms of inflation but market prices, too. This is where having the right financial advice tailored to your goals and situation makes all the difference, but plenty of people still feel in the dark.
In fact, recent insights show that many people are being forced to rethink their retirement plans as a direct result of the financial crisis, with many re-entering the UK workforce in their fifties and sixties.
Now, another shift has made planning even harder for many UK workers. Most recently, the government announced that the state pension age would rise from 60 to 66 (for women) and from 65 to 66 (for men).
Here’s how that affects you and whether you can stick to your existing retirement plans.
Why has the state pension age changed?
The state pension age changes fairly regularly. It is determined based on a range of factors but, predominantly, on the government’s predictions for average life expectancy for each generation approaching retirement. If life expectancy rises, then it is assumed that the state pension age will inevitably increase. A larger pensioner population puts more strain on the government.
Improvements in medicine and care mean that, right now, the average life expectancy for both men and women is rising. As a result, the state pension age is anticipated to rise further over the coming years. At the time of writing, the government intends to increase the age to:
67, sometime between 2026 and 2028.
68, sometime between 2044 and 2046.
These dates are not set in stone and depend on the various criteria the government use.
Can you retire before you reach state pension age?
Yes, you can technically retire at any age you want, provided you have the means. In other words, the fact that the state pension age has risen – or the fact that it will rise again before you are ready to retire early – doesn’t mean that you have to wait any longer. It simply means that you won’t be able to claim your state pension until the age of 66, or whatever the state pension age is, when you are ready to leave work.
Anyone over the age of 22 or under the state pension age will be automatically enrolled in a private pension scheme by their employer. If you own a business or work for yourself, then you can enrol yourself on a pension scheme at any time. Some people choose to make additional long-term investments into options like onshore and offshore bonds or ISAs. This is a great way to ‘top up’ your savings for retirement and ensure you have enough to support the sort of lifestyle you want to lead when you retire.
Most private pensions can be accessed no earlier than the age of 55. The downside of cashing your pension early, of course, is that the money will need to support you for a lot longer, particularly if you give up work entirely.
You may be able to support yourself in early retirement with reduced hours or income generated through your investment portfolio, even if you have to wait a while before you can cash your pension.
Planning for your retirement is complicated, and, ideally, you should be laying down the foundations from early on in your working life. It’s inevitable that the economy and framework surrounding how people can cash their pensions and retire will go through plenty of changes in that time, but steadily boosting your own investments and growing your pension pot will never not be a wise idea.
This is something we can help with at Perennial Wealth – working with you to create a plan that serves your own unique circumstances and goals for the near and distant future so that you needn’t feel rocked by any turbulence from the economy or the government.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.