Aged under 47? You'll retire later

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The government has released its latest life expectancy predictions, and pensions experts have fallen on them in a frenzy. Their calculations show that George Osborne's new rules for the state pension will mean that everyone aged 47 or under is likely to see their state pension age rise to 68.

At the age of 47 Heston Blumenthal falls into this category. But what does it mean for you?
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Life expectancy

The government issued a new set of life expectancy figures. For those hitting the age of 65 right now there has been very little change to their life expectancy since last year (it has shifted about a month). For younger people there have been small rises.

The predicted life expectancy for a newborn today is 90.7 for boys and 94 for girls. For a 45-year-old its 86.2 for men and 89.3 for women. For a 65-year-old it's 86.4 for men and 89 for women, and for an 80-year-old its 89.5 for men and 91.1 for women.

State pension ages

Pension boffins at Towers Watson then plugged those figures into Osborne's formula for calculating when people will hit state pension age (in order to spend a third of their life receiving a state pension).

They calculated that the state pension age would reach 68 in 2036 (starting to rise in 2034). This will affect anyone aged 47 or under.

It will then reach 69 in 2049 (starting to rise in 2047). This will affect those aged 31 and under - and those aged 33 will be the first to retire at 69.

It will then rise to 70 in 2063 (starting in 2061). It means that someone aged 20 today will get their state pension at the age of 70.

Goalposts move

Interestingly, the figures show that life expectancy isn't increasing as fast as it has before - and that's even building in assumptions of a very fast increase in life expectancy over the next two years.
Matthew Fletcher a senior consultant at Towers Watson, said: "Putting the new ONS life expectancy assumptions into the Government's formula points to a slightly slower increase in the State Pension Age than was signalled in the Autumn Statement. This is not the final answer, though. All eyes should be on the next set of ONS assumptions, due in two years' time, which are the first ones that could affect State Pension Ages."

Infuriatingly he also points out that not only is this not the final answer, future governments also have plenty of wiggle room. He says: "If future Governments do not like the answers that the ONS life expectancy numbers produce, a small tweak to the target retirement length will quickly solve the problem."

It means that we could be carefully working to retirement at 67, 68, 69 or 70, and a future government could announce that we're only going to spend 25% of our lives receiving a state pension - so we have to work at least five years longer.

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Aged under 47? You'll retire later

If, like many Britons, you have failed to save the cash you need to maintain a comfortable standard of living in retirement, one option is to sell your home and downsize to a smaller property, using the money leftover to cover your living costs.
If moving out of the family home is too much of a wrench, however, the good news is that equity release schemes allow you to stay in your house or flat while still using the equity built up in it to provide some extra cash. The downside of the schemes, which work a bit like mortgages, is that you may not have much left to pass on to any children or other relatives.
But that's a small price to pay for a reasonable standard of living. For more information, try Age UK on 0800 169 6565.

Choosing the right annuity can have a significant impact on your retirement income. And as with most pensions, you automatically have what's called an 'open-market option' (OMO), you can scour the market for the highest annuity rate.
It is worth checking what your pension provider is offering first, though, as some companies offer guaranteed rates for existing customers that are likely to beat those available elsewhere. The Pensions Advisory Service on 0300 123 1047 is a good place to get some free advice.

On retirement, most people convert their pension fund into a guaranteed income annuity that pays out the same amount every month for the rest of their lives.
However, you can also choose an increasing annuity that pays out smaller amounts in the first few years but offers larger payments further down the line. This may prove a wise move if the rate of inflation remains at over 2%.

It is now easier to work later in life because the "default retirement age" has been scrapped.
People approaching retirement age and worrying about money can therefore choose to work for a few years longer - potentially transforming their financial situation. Other than the extra income from working, these people can look forward to higher state pensions, and higher annuity rates due to their greater age.
They can also benefit from bigger tax allowances and the fact that they no longer have to pay National Insurance contributions. Check out this nidirect website for more details.

You could get a much better rate with an impaired-life annuity if you have a medical condition that is likely to reduce your life expectancy.
Incredibly, even snoring, which is a common symptom of Sleep Apnoea could have an impact.
According to figures from MGM Advantage, a man with this condition could receive an extra £12,000 retirement income over the course of their retirement - or £571.44 extra money each year. Click here to find out more.

To maximise your retirement income, it is vital to ensure that you are receiving all the benefits to which you are entitled. These include the basic State Pension, and in some cases, the additional State Pension.
If you are on a low income, you could also qualify for the guaranteed element of Pension Credit, while those with some savings may get the savings element of this benefit. For more information about these and other benefits such as the Winter Fuel Payment, click here.

Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.

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