State Pension: Why It Isn't Enough...

By FMB on 

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I recently read with interest in the news that a leaked draft of Labour's election manifesto had rejected increases in the state pension age above the age of 66.

That would rule out a rise to 67, to be implemented by 2028, as well as further rises to 68 and possibly 69 or 70. However, the cost of scrapping these changes could cost £30bn by 2050. Is this realistic for a government already struggling to fund the State pension and other costs as it is?

Whatever happens, it is becoming clearer and clearer that if you want to retire at an age young enough to enjoy your retirement and do all the things you plan to do, you will have to rely on more than the State Pension, and private provision will become more important than ever before.

When I undertake retirement planning for my clients, I start by trying to get an idea of the lifestyle they want to have during their retirement and what the likely cost of this will be. Many people are resigned to the fact that they will have to reduce spending, or downsize their homes, but if they start to plan and save for their retirement early enough, this may not be the case.

Once we have a target income in mind, I can look at the existing provision they have towards this. This may be a collection of various personal pensions they have set up over the years, or non-traditional pension savings such as ISAs – it can all be included towards retirement planning. I will also order a State Pension forecast for them so we can check they will be entitled to the full State Pension, or whether they will receive a reduced amount due to gaps in their National Insurance record. This will also confirm the age they can claim their State Pension. I then use cash flow modelling software to calculate the likely shortfall, or surplus, they will have in retirement.

If it turns out there is a shortfall, we can then look at ways to reduce this, perhaps by increasing monthly savings if there is room for this in their budget, or by working a few years longer perhaps.

There are also other considerations – if a plan is based heavily around saving towards retirement but then the client is unable to work due to illness for example, this could impact on their retirement as well as their current standard of living. To solve this issue, income protection policies could be considered.

In general, having a robust financial plan which takes into account all necessary factors and is reviewed at least annually is key when starting to plan your retirement, and this is where we can help.

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