Millions of us will have to wait longer to access our State Pensions after the timetable for raising the age from 67 to 68 was brought forwards.
The previous intention had been for the State Pension age to rise from 67 to 68 between 2044 and 2046, but the new plan is to bring this forward, and for the increase to happen between 2037 and 2039. So, millions of us could now face a shortfall in our savings given the additional time we will be without this payment.
The State Pension age was always going to rise, but the fact it is now set to happen sooner than we all expected means the onus falls even more squarely on us to save and make up any shortfall we have in our pension planning due to this delay.
The reason given by the Department for Work and Pensions (DWP) relates to the expense of paying out State Pensions to those who are living that much longer in retirement.
Those affected are aged between 39 and 47 today, and if you fall into this bracket, then you should start thinking about what you can do to address your pension saving sooner rather than later.
As with any savings plan, starting early will give you the best results as you have more time to be able to salt money away. But let’s be realistic, you also have to free up some money to be able to put more into your savings pot than you currently can.
In our last newsletter, we discussed how you can significantly boost your savings by cutting out some of the surprisingly costly expenditure we enjoy each week without even thinking, and these savings can be substantial. See our article ‘Small savings do mount up’
However, it is also important to make sure you are using all of the benefits and tax breaks that are available from the Government as well. For example, the Lifetime ISA – while not widely taken up by providers as yet – does offer those who are aged 18 to 40 the chance to get a Government bonus payment each year.
The Government will add a 25% bonus to funds of up to £4,000 saved per year, until the age of 50. This bonus will be added to the Lifetime ISA at the end of the 2017/18 tax year, then monthly from April 2018, so that savers will also benefit from tax free interest or growth on the bonus from the time it’s added. This is not an amount to be ignored, after all, where else can you get a 25% return on your money? For more information about Lifetime ISAs download our factsheet
You should also consider maximising the tax-free status of ISAs too, as you can now put up to £20,000 into an ISA tax free for this year alone. For more information about ISAs and the different options available please see our article ISAs explained later in this newsletter.