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The Future of Retirement?

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I been watching “the town that never retired” on BBC 1?  It is frightening to think that our children and grandchildren may have to work well into their 70s. The current state pension system has become too expensive to sustain so will have to change.  When the “Old Age Pension” was introduced in 1909 is was worth 5 shillings per week to a single person or 7s 6d for a married couple (equivalent to £19 and £29) in todays terms.  It was means tested and only payable from age 70.  Given that life expectancy was below 60 years, few people received the pension.

The pension system we have now really appeared following the Beveridge Report of 1942 but was not designed for the increasing life expectancy we now see following medical advances in the late 20th century and increased standards of living seen in the UK since the war. It’s an inescapable fact, everyone grows old. The over 65s are the fastest growing age group in Britain and by 2030 it’s estimated that a quarter of the population will be over the age of 65.  Pensions in ther current format will be a huge burden for the working population.

The programme has highlighted the challenges faced by employers and employees in working well beyond today’s state pension age.  Given that the state pension age is already planned to increase to 68 and one can only wonder whether we will return to a system of state pensions similar to that in place before the Beveridge Report.

It is clear that there will be less state support in the future.  This month saw the implementation of the new work based pensions which have to be implemented by larger employers.  The onus to provide for our own futures however will become more our own responsibility as the state withdraws its support.

Remember however that the state does provide help for those looking to save into pensions.  For every £100 an individual pays into a pension, the government will add another £25.  Higher rate tax- payers can claim an additional 20% tax relief.  Recent changes also mean that pensions do not have to be risky.  There are limits on how much tax relief is available and before paying into a pension, it is wise to seek advice.  Remember as well that babies and children have their own tax allowance and can receive tax relief on amounts paid into a pension for them by parents and grandparents.  Currently up to £2,880 per annum can be saved into a pension for anybody not in employment : tax relief will increase this to £3,600 per annum.

An oak tree is something planted for future generations.  A pension could be the seed that is planted for children and grandchildren to ensure they have financial security in the future and do not have to work well into their dotage. Whilst the stage pension age will undoubtedly increase, the age at which an income can be taken from private pensions is currently 55.

For any questions relating to pensions please do not hesitate to contact SWLaw Investments and Financial Planning.

* Graham Westhall is a Chartered Financial Planner with over 25 years experience in the finance industry.

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