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Morfitt & Turnbull

Issue 49   

State Pension Age Increase Inevitable?

An increase in the state pension age is almost certainly ‘inevitable’, after new data showed the population aged 90 years and over continued to grow in 2018.

Figures published by the Office for National Statistics showed there was an increase of 0.7% in the number of people aged 90 years and over, from 579,776 in 2017 to 584,024 in 2018. This hike was mainly due to the number of men aged 90 years and over, which rose 2.8% when compared to the previous year.

The age at which individuals can claim their state pension is set to rise to 66 by 2020, 67 between 2026 and 2028, and 68 between 2044 and 2046.
In August, the Centre for Social Justice - a think tank chaired by Iain Duncan Smith MP, former secretary of state for Work and Pensions – proposed to increase the state pension age to 75 by 2035, in a move to tackle the challenges posed by an ageing society to the UK’s fiscal balance.

In his closing speech to the recent Labour party conference, Jeremy Corbyn assured delegates that under Labour no-one would ever be required to stay in work to age 75 although he gave no indication as to where he stood on existing government proposed increases to the state pension age over time to 68.
Although most, if not all, politicians may insist they have no plans to increase the state pension age, much beyond the present level, it seems inevitable on cost and affordability grounds, with a continuing ageing population, that further increases will be necessary. If not to the age of 75 then maybe to 70 at least by the mid-point of the century.   Parliament
These figures may also prompt some people to rethink their planned retirement age, which may be why an increasing number of people are choosing to work beyond traditional retirement ages, often taking a transitional approach to retirement by gradually reducing the number of hours worked in the run up to stopping work altogether.

With more people already reaching 90 and the expectation of this continuing to increase, there’s also a greater likelihood of people requiring social care in their later years, and this needs to be paid for in most cases.
This also has implications when planning for later life, as one in five males and one in three females born in 2016 to 2018 are likely to celebrate their 90th birthday. As a longer life requires more money to make the most of it. For those using their pension pot to generate an income throughout their retirement, there’s now a very real prospect of needing to plan for an income to last well into your 90s.

Although, despite of this, quite worryingly nearly half of pension pots are being accessed without individuals taking any regulated advice beforehand, according to latest official figures.
  Hip pensioner
Latest data on the retirement income market from the Financial Conduct Authority, showed from April 1, 2018 to March 31, 2019, 48% of pension plans were accessed without regulated advice or guidance being taken by the holder. This compared with 37% of plans accessed by plan holders who took regulated advice.

For around 45% of plans where the holder bought an annuity or took a partial lump sum withdrawal they received no regulated advice or guidance, rising to 62% for plans that were fully withdrawn at first access. For pots entering drawdown, 34% of individuals did not take regulated advice, although 9% sought guidance from Pension Wise.
The data also showed that over 350,000 pension pots were fully withdrawn at the first time of access, 90% of which were worth less than £30,000. The average value of pots fully withdrawn at first access in 2018/19 was £13,000.

This data should start alarm bells ringing for the regulator as even where pension money is left invested and regular sums taken, some withdrawal rates are far higher than is sustainable for a long-term investment such as a pension. The FCA figures show that 4 in 10 drawdown customers took more than 8% of the fund value a year and 74% of people are taking more than 4% of the fund value each year.
  Faculty of Actuaries
This contrasts with guidance from organisations such as the Institute of Faculty of Actuaries suggesting that 3.5% p.a. would be a more suitable drawdown rate for a 65-year-old and 3% for a 55-year-old. The data also confirmed that more individuals have shifted from buying annuities to using drawdown.

So, as ever, the world of pensions is always moving and evolving!



Adam's Technical...  Saving for later
The State pension is currently £168.60 per week. This amount is normally the maximum and is dependent upon having paid or been credited with sufficient National Insurance contributions. Although nearly £8,800 per annum is not an insignificant amount, it may well be swallowed up by monthly bills.

No one knows what the State pension will look like in the future. The age when it can be taken may continue to be pushed back, it may be reduced and it could even be means tested or stopped entirely. This is why making provision for retirement is important. If possible, we should all try and avoid the scenario whereby the age at which our State pension commences dictates when we stop working.
Most individuals who are employed will have been placed into a pension scheme as part of the new pension rules, referred to as auto enrolment, introduced a number of years ago. This means that pension contributions are deducted from monthly pay and invested into a pension plan.

There is also an employer pension contribution made in addition. Although this is great news, in general, the amount being invested needs to be increased to provide a larger pension fund in retirement.
    Work pensions

The earlier pension contributions start the better. For example, if a £50 per month pension contribution is made for 10 years, at the end of this period, the pension fund would be valued at £7,750. Extending the length of the term to 30 years results in a pension fund of £40,900 for the same monthly amount. Increasing the contribution to £100 per month doubles the £40,900 figure over 30 years. These figures do not take into account plan charges and the assumed growth rate is 5% p.a.
It may be possible to simply increase the amount you pay into your company pension scheme. Your employer will be able to help.

The self-employed are not currently part of the auto enrolment rules so a pension plan has to be set-up.

If you wish to discuss, please contact your usual M&T adviser.

Gareth Says... 

Elections and Impeachments!

There seems to be turmoil in the World at present – the UK political scene is a mess, we also have BREXIT on our doorstep. Iran seem to be trying to flex their muscles, China have protests, 30 years after Tiananmen Square and the Americans are talking about impeaching their President, the first time in history if successful.

Therefore, why are markets still remaining steady???
    Steady markets
This is a difficult problem to answer. Perhaps the markets believe the UK will come out of BREXIT stronger and that Boris will survive. China will bow to the protestors, Iran’s bravado will come to nothing and Trump will not be impeached (it is very unlikely as whilst it may get past the House of Representatives as a simple majority, it requires a 66% majority in the Senate and the Republicans hold a majority).

However, that said, we have a lot of clients who have taken monies out of the market, if you haven’t and wish to let us know and we will advise accordingly.

Staff Matters
Craig celebrated his 50th birthday with a trip to West Coast USA, taking in LA, Anaheim, Las Vegas and San Francisco. With the highlights being locked in a prison cell in Alcatraz, a birthday dinner whilst watching the dancing fountains of the Bellagio from the table and not losing out in the casino’s! amongst many others.
Craig1 Craig2 Craig3


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