Make savers wait longer for pension cash, urge MPs

Pink piggy bank and hand with hammer

Concerned that pensioners will blow their pension pot too quickly, the Commons Work and Pensions Committee is calling for savers to be blocked from accessing their cash until they reach the age of 57 or 60.

Under reforms to pension rules coming into effect next month, savers are allowed to cash in all or part of their pension pots from the age of 55.
However, the MPs believe that, for pensioners' own good, this should be increased to just five years before pension age. Men, therefore, would currently have to wait until age 60, and women to 57, rising to 62 for both sexes in ten years' time.

"Allowing people to take advantage of the new pension flexibilities 10 years before they get their State Pension could create unrealistic expectations about the age at which they can afford to stop working," said Dame Anne Begg, the Labour chairman of the committee, in a report presented to ministers.

"Our view is that, given the significant tax relief provided for pensions, increased longevity, and the importance of ensuring that people do not underestimate the income they need in retirement, the age at which people should be able to access their pension pots should be changed to five years before the State Pension age, except where there are ill health grounds."

The committee is concerned that savers don't necessarily understand how big a pension pot they're going to need - and how long it may have to last them.

The report also warns of the risks pensioners run from scammers - highlighted by pension experts yesterday - and even from pension providers themselves.

"The pensions industry has not always done enough in the past to help savers make the right decisions," says Dame Anne.

"We are very pleased that the FCA has finally been persuaded to place a duty on pension companies to ask savers key questions to try to ensure they understand the implications of decisions on how they use their pension pot."

But, says the report, more still needs to be done to protect savers, including the creation of a new independent pension commission that should assess whether there are weaknesses and loopholes in the current rules.

The Institute and Faculty of Actuaries (IFoA) has expressed concern in the past about whether savers will be given enough support, and welcomes the report's findings.

"A review of the age at which pension savings can be accessed, which is currently 55 and rising to 57 by 2028, would be welcomed as it could go some way to alleviating some of the risk that individuals may run out of money in retirement," says president Nick Salter.

"The IFoA has previously stated concerns regarding the promised guidance individuals are due to receive in the run up to retirement and it is important that this guidance is fit for purpose and helps individuals plan appropriately for their retirement needs."

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Make savers wait longer for pension cash, urge MPs

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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