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Understanding pension uncertainties

Survey highlights prevailing uncertainty among those on the cusp of retirement 

A recent study reveals that a considerable proportion of UK adults, including a significant number nearing retirement, find themselves in a quandary regarding their State Pension entitlements and the commencement of their payments [1].

The research underscores that 31% of Generation X individuals (ages 42-57) are in two minds about their retirement timing, in stark contrast to 19% of Baby Boomers (born between 1948 to 1964) and the older cohort (58 years and above). Moreover, a notable 24% of UK adults confess to being unsure about their retirement timing, with 27% of women feeling less confident compared to 21% of men.

This prevailing uncertainty among those on the cusp of retirement concerning their retirement timing, requisite finances and the possibility of semi-retirement is alarming. There appears to be a pronounced generational gap, likely attributed to the phasing out of Defined Benefit (DB) schemes – offering a guaranteed lifetime income based on salary – and the surge in Defined Contribution (DC) schemes, buoyed by auto-enrolment over the past decade. While providing greater flexibility in accessing funds, DC schemes impose a more significant requirement on individuals to ensure adequate savings for their retirement.

Longevity of savings and the desired lifestyle

Recent economic conditions, including two years of heightened inflation and rising interest rates, have made planning for retirement more challenging for many. These conditions have shifted focus to more immediate financial concerns. However, by breaking down the retirement planning process into manageable segments, individuals can approach decision-making with greater ease and assurance. Essential considerations include the longevity of savings and the desired lifestyle in retirement.

When contemplating retirement, determining the appropriate age to cease working is pivotal. This includes understanding when one becomes eligible for the State Pension, as it constitutes a significant component of most retirement strategies. It is also crucial to ensure that personal pension plans reflect the intended retirement age, as this can influence investment decisions as one approaches retirement.

Additionally, the normal minimum pension age (NMPA) is the earliest age most people can start withdrawing money from their personal and workplace pensions. It’s currently 55 years but will increase to 57 from 6 April 2028, unless you have a Protected Pension Age or are retiring due to ill health. The prospect of retirement brings with it considerations of daily life post-work, including how to maintain social connections and stay active, with many employers and pension providers offering preparatory schemes.

Navigating your pension options for retirement

As retirement looms on the horizon, it becomes imperative to explore how best to utilise your pension savings. The flexibility of options – whether withdrawing lump sums, maintaining investments for flexible access or opting for a lifetime guaranteed income – requires careful consideration. Ensuring your pension scheme supports your preferred route is crucial; if not, it may be beneficial to compare alternatives. Finding a plan that aligns with your objectives could put you within reach of a more favourable retirement income.

Forecasting your retirement financial requirements

Accurately projecting the annual income necessary to sustain your desired retirement lifestyle is a foundational step in planning. This projection must account for lifestyle aspirations, debt obligations and any dependents you anticipate supporting financially through retirement. This foresight plays a pivotal role in assessing the adequacy of your current savings and pension pot in meeting these future needs.

Financial readiness for your retirement

With a clear understanding of your lifestyle goals and required income, the next step involves evaluating whether your savings are sufficient. Given that the State Pension may contribute up to £11,502.40, which commenced this April, a gap exists for those aiming for a ‘moderate’ lifestyle, necessitating an additional annual income. This shortfall underscores the importance of considering all sources of retirement income, including personal and workplace pensions, ISAs, other investments, and potential earnings from part-time work or property rentals.

Reuniting you with forgotten pension pots

The journey through different employment phases often results in misplaced or forgotten pension pots, which, when reclaimed, can significantly augment your retirement savings. Actively seeking out and consolidating these pensions can offer a clearer view of your financial standing. However, the decision to transfer pensions requires thorough deliberation and professional financial advice to navigate potential risks and ensure the choice aligns with your best interests.

Do you want to discuss securing your path towards a stable and rewarding retirement?

For those in need of further insights or assistance in navigating the complexities of retirement planning, seeking expert professional advice is essential. Contact us today to secure your path towards a stable and rewarding retirement.

Source data

[1] Boxclever conducted research among 6,350 UK adults for Standard Life. Fieldwork was conducted 26 July–9 August 2023. Data was weighted post-fieldwork to ensure the data remained nationally representative on key demographics.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE). 

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. 

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

Adam Reeves

Author: Adam Reeves

DipPFS Cert CII (MP&ER)
Independent Financial Planner, Wealth Manager, Director

Last updated on

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Adam did a thorough review of my pension policies, clearly explained how well they had performed, how flexible they were, how the market regulation has changed, and, crucially, what the tax implications would be if I were to leave them untouched. He accurately assessed my attitude to risk and recommended an up-to-date solution that will offer me the greatest flexibility at retirement.

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Rob – West Sussex

Adam and his team undertook in-depth research into our existing QROPS schemes and clearly set out both pros and cons of transferring the funds back to the UK. Having decided to go ahead with the transfer, Adam and his team worked extremely hard to facilitate the transfer. The QROPS pension trustees were not always the most professional or responsive organisation – however we were very grateful for the perseverance and commitment that Adam showed us as clients.

Jonathan – East Sussex

Adam offered a range of financial products , the one he suggested was affordable and proved to be a good choice.  Returns on investments have exceeded my expectations, based on Adam’s advice and guidance. Profits have enabled house improvements to take place.

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Adam arranged an appointment very timely, he explained his role and qualifications as an IFA giving me reassurance , we went through my retirement and investment goals. Adam discussed my options explaining in great detail, I felt relaxed during our discussions allowing me to fully understand my choices. I feel very confident in the financial advice allowing me to enjoy my retirement.

I was very happy with Adam’s recommendations and explanations of financial products which would suit my retirement goals, I feel this has helped me review and reduce my financial risk as I reach retirement, leaving me feeling confident that I can enjoy my retirement plans.

Ron – West Sussex

After initial meeting Adam put together a very detailed and thorough written plan. At our second meeting he went through the whole booklet and explained everything in layman’s terms which made it a lot easier to understand.

I am very happy with everything that was suggested and put in place especially with something as big and important as pensions. Adam and his team have taken a huge weight off my shoulders and I would highly recommend their services to anyone needing help with their financial planning and pension.  Adam couldn’t have been more helpful, and even came outside his normal area to meet me on a number of occasions.

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Unfortunately I had to claim on my critical illness insurance due to my wife being ill and because of the sound advice Adam gave in acquiring this insurance we ended up being financially safe through a tough time.

Steve - Kent

Adam did a review of our financial situation, confirmed that Flexible Drawdown best suited our needs as a family, and then did all the research into the best product for us. He will continue to monitor it for me. He acted extremely promptly because we had a deadline for requiring the lump sum; went out of his way arranging meetings during non-office hours, was professional yet friendly and explained a difficult subject very well.

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