Pensions; the who what why and where
We spoke to Richard Smith pensions and retirement planning expert at Marchwood IFA about the who, what, where and why of pensions and retirement.
The launch of State Pensions
The first State pensions were launched in January 1909 to financially benefit males from the age of 70. We may yet see this turn full circle for men and women; already the retirement age has been lifted from 60 years’ old to 65 (for those born from 6 Sept 1953 to 5 Oct 1964).
In 1909 though, the average Life expectancy was only 47. Just one in four people reached the age of 70 and were able to receive their then five shillings per week pension – £14.00 in today’s terms.
100 years after State pensions launch Marchwood forms in 2009
Fast forward to a year or so before Marchwood formed in 2009; the State pension ages were ironically increased again to 66, 67 and 68 years’ old. Surprisingly; in April 2009 a single person received £95.00 per week State pension, as compared to £129.00 per week in 2019.
Pensions have changed partly because of improved Life expectancy and also significant falls in Annuity rates. By way of example in 2009 (when Marchwood was formed) someone retiring at 65 with a £100,000 ‘pension pot’ would expect to receive £7,157per annum whereas today this would be only £4,800per annum.
How Life expectancy has changed pensions
The Government were forced to implement changes to ease the financial burden on the State and in 2012 (to 2017) introduced ‘Auto-Enrolment’ into workplace pensions.
Why workplace pensions where introduced
Millions of workers have since been enrolled automatically into workplace pensions by their employers. Whilst making contributions towards their retirement fund, employee’s contributions also attract tax relief as an additional incentive to save.
The other main incentive from the government to attract individual pension contributions has been the introduction of ‘Flexi-access drawdown’.
This permits the individual unlimited withdrawals from their pension fund from the age of 55 onwards – significantly changing the previous ‘annuity only’ pensions environment.
With so many changes in State pensions, annuities, individual, private and workplace pensions; now would be a good time to review your options. Please do not hesitate to contact myself, Richard Smith, here at Marchwood IFA for a pension review?
Book a consultation with Richard.
Before you go, we have some interesting information about retirement living standards.
The guidance is based on research conducted by the Pensions and Lifetime Savings Association. It illustrates the kind of lifestyle that an individual might expect based on minimum, moderate and comfortable retirement income. The standard where set by Loughborough University who conducted the research on behalf of the Pensions and Lifetime Savings Association.
The minimum standard retirement income was set at £15,700 per annum for a couple and £10,200 for an individual.
The moderate standard retirement income was set at £30,000 per annum for a couple and £20,200 for an individual.
The comfortable standard retirement income was set at £47,500 per annum for a couple and £33,000 for an individual.
Those on a minimum retirement income would expect one week-long UK holiday per year and one long weekend also in the UK. They would expect to spend £38.00 per week on groceries and might struggle to afford to have a car.
Those on a comfortable retirement income would expect to holiday for three weeks in Europe every year, and to be able to spend £56.00 per week on grocery shopping. They could also expect to own a two-year old car and be able to replace it once every five years. They would expect to be able to renew kitchens or bathrooms every 10-15 years.