The changing face of pensions

Piggy bank

Pensions

Julie Hutchison

18th June 2014 at 3:40pm

Why are pensions worth caring about?

Well, let me tell you why I care about pensions.

My wage after work

As I see it, the more I can save, the earlier I can decide that full-time work becomes optional!

I’m sure you’ll have heard about life expectancy and how we’re all meant to be living longer these days. For me, saving means I can spend my later years as I choose to (health permitting). I may want to work part-time, but I’d rather not start my 70s feeling like I have to keep working full-time.

For that to be a reality, I need to save now, and keep saving over the next couple of decades.

Learning from those who are there already

A big driver for me has been watching my parents’ generation as they retire in their 60s and move into their 70s.

While they are far more active than my grandparents were at that same age, I don’t think any would relish the prospect of a 9-5 job any more – they’re enjoying a different pace of living without a daily commute.

And that’s what I’d like too.

Pensions are changing

My parent’s generation faced simpler choices at retirement – it was the era of ‘defined benefit’ pensions – the kind which pay an income linked to your years of service and former salary. These kinds of pensions aren’t so common today – recent figures show only 28% of employees still have that kind of pension, compared to 46% in 1997.

This means we tend to retire now with a pot of pension savings and choices about how to use that pot. With choice comes the responsibility to save for ourselves. But we’re getting a helping hand with this, when it comes to workplace pensions. In the past, you might have had to choose to join your workplace pension scheme. Now, with auto-enrolment, many people join automatically which kick-starts your savings.

And there will be even more flexibility for us from April 2015.  In 2012, 420,000 people took a fixed income pension – they bought an annuity. From April 2015, we’re expecting fewer people to go down that route as some will choose to use the new flexible rules to keep their pension invested and take flexible withdrawals instead (known as ‘drawdown’).

Drawdown gives you more control over your income tax bill too, as I wrote about in this blog. Fixed income or flexible income – it’s an important choice, and an annuity will still suit those who want the security of a guaranteed income. It could help to speak to an expert to get guidance on your own situation and help you make the right decision about your income in later life.

How will pension changes affect you?

I hope I’ve managed to convince you that pensions are worth caring about, and that even if you’ve always just filed away your statement, there is a need to understand how much you’ve saved.

To keep up-to-date on how pensions are changing as we move towards April 2015, why not subscribe to our blog?  And there’s more information on changes to the State Pension here and some new rules which apply if your pension savings are under £10,000 or under £30,000.

This blog and any responses to comments are not financial advice. A pension and drawdown are investments. Their value can go up or down and you may get back less than you paid in.

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