Pension age rise: there’s more to come
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The age at which we become entitled to receive a state pension will continue to rise, says finance expert Peter Sharkey.
Much like millions of others, the number of books I’ve read since late March has been significantly higher than normal. Whereas previously it would take most of a relaxing fortnight’s holiday to plod through a biography or political history, it’s no longer unusual for me to devour a couple of books a week. Last week, for example, I read To Kill A Mockingbird (and wondered why I’d never read it before: absolutely brilliant), as well as Inside The Kingdom, Robert Lacey’s well-researched overview of modern-day Saudi Arabia. I also began dipping into Musicophilia, Oliver Sacks’ fascinating collection of essays about music and its cognitive impact.
Early in his book Sacks writes about “Brainworms, sticky music and catchy tunes” – those often irritating tunes that accompany a film or television show or an advertisement that seem to lodge themselves in your consciousness. “This is not coincidental,” writes Sacks, “for such music is designed… to ‘hook’ the listener, to be ‘catchy’ or ‘sticky’, to bore its way, like an earwig, into the ear or the mind [so that] one might be inclined to call them ‘brainworms’.”
We don’t know precisely what triggers musical brainworms, although it is astonishing how, once they get there, the brain can replicate the tune, its beat and timing so precisely. As an example, whenever I see a reference to the number 66, it invariably reminds me of Bobby Troup’s Route 66, as sung not by the Rolling Stones or even Chuck Berry, but by Nat King Cole.
There’s been plenty of humming along to Nat’s version “Well if you ever plan to motor west/Just take my way that’s the highway that’s the best” this week as age 66 featured prominently in the news.
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Tuesday marked the point at which entitlement to a UK state pension rose from 65 to 66. Regular readers will recall that more than two years’ ago I mentioned that this will be the first of many such increases. We already know that the official retirement age will rise to 67 in eight years, while plans to bring forward the date at which it’ll become 68 are already afoot.
Back in 2018, I suggested that eventually the age at which older folks become entitled to a state pension will be 75, when it’s also likely to be means-tested, with only around 10% of people actually receiving it. Nothing that has happened since has caused me to amend that view.
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For a start, two primary factors that accounted for my forecast remain unchanged.
First, life expectancy continues to rise; it’s becoming increasingly common for people to spend 25-30 years in retirement, an unexpectedly lengthy period unforeseen by those who constructed what was intended as no more than an old age financial safety net in the middle of the last century. Accordingly, responsibility for funding long-term retirement is likely to shift markedly towards individuals and away from the state. Indeed, if you’re in your twenties or thirties, it’s probably best to forget about receiving an old-age pension and make your own provision.
Second, our state pension is, in effect, a giant Ponzi scheme, a pay-as-you-go arrangement which is almost exclusively dependent upon a steady flow of contributions from people of working age, in the form of National Insurance contributions (NIC), to fund the pensions of a growing number of retired folks.
Now there is a third factor: coronavirus. Every day since the virus swept in from who-knows-where (or how), the economy has suffered from its vicious, debilitating influence to the point where it is now on its knees. By the end of the month, when the furlough scheme finishes, we can expect unemployment to surge with a corresponding reduction in NIC; the resultant knock-on effects on our state-run Ponzi/pension scheme are obvious.
Of course, the UK is not alone in feeling the brutal Covid-19 impact; almost every other Western nation has either implemented plans to defer its citizens’ entitlement to state pensions or is expected to do so.
If you’re aged 20-35, apologies for the incessant doom and gloom but there is a silver lining: you have plenty of time to invest and ensure you’re not reliant upon the state to fund your old age. Older readers, aged between 40-60, should start planning how they can realistically fund their retirement. Reading about how best to invest in private pensions such as SIPPs, or workplace pensions in conjunction with an employer will be time well spent.
If you too are ploughing through books at the moment, there are plenty available – the FT Guide to Saving and Investing for Retirement by Yoram Lustig is a good place to start.
Your retirement planning may involve equity release, but how much could you release from your home? The figure is determined primarily by your age, health and your property’s value, which must be at least £70,000. These are the principle requirements, although alternative options exist based upon personal circumstances. You can get a very good idea of how much equity you can release by visiting the Moneymapp.com website and filling out the equity release calculator.
It’s worth noting that equity release isn’t a panacea. It’s not suitable for everyone and it may compromise your eligibility for means-tested state benefits.
Wealth of information
As many readers have already discovered, there’s a wealth of information to be discovered at: https://www.moneymapp.com/equity-release . In addition, there are hundreds of blogs and articles dealing with the subject on the Moneymapp website, including Peter Sharkey’s weekly blog, rated among the UK’s very best. Read more at: https://www.moneymapp.com/blog
You may still email any queries or questions regarding equity release to: firstname.lastname@example.org
Please note that Moneymapp.com cannot advise readers on whether equity release is suitable for them. However, Moneymapp.com can introduce readers to professional advisers who will explain the process and its implications for your estate and entitlement to means-tested state benefits.
Retirement planning and equity release
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For more financial advice, check out Peter Sharkey’s regular column, The Week In Numbers.