Are you one of those most at risk from new pension rules?

Concerned therapist comforting female patient in the office

If you're in the last few years before retirement, then you face new and alarming risks. There are pension scammers lying in wait, the risk you'll end up losing benefits and paying more tax, and even the risk you'll overspend and have nothing to cover the cost of care. You'd be forgiven for thinking that being first to retire with new pension freedoms is about as risky as it gets - but you'd be wrong. Things are far more dangerous for a completely different group of people.

According to Profile Financial, the riskiest group to be in is aged between 45 and 55. The idea is that those people who are retiring right now are still reasonably likely to be doing so with at least some generous DB pensions in the mix. They have also benefited from runaway house prices, and can cash in on the value of their home in order to set themselves up for a comfortable retirement.

At the other end of the age spectrum are those who were automatically enrolled into a workplace pension near the start of their career, and while current minimum payments may be low, they are set to grow - and in any case, plenty of employees and employers are paying more than the minimum already. They won't have the guaranteed pensions of many current retirees, but they stand a reasonable chance of building up a suitable pension pot.

Those in the middle, and specifically those aged 45-55 have fallen between the two. Many of them have no defined benefit pension at all. If they are lucky they will have a defined contribution pension - but they may not even have this.

Those who do have a DC pension are likely to have been blindly paying in over the years, and the vast majority of them will have let the cash fall into the default fund chosen by their employer to mop up everyone who failed to make a decision.

They won't have checked what they are paying in charges, they won't have any idea what they have in their pension, and they don't know what that pension will eventually buy them in retirement.

When they get to retirement, they may make assumptions about the kind of lifestyle their pensions income should be able to offer, and the new rules allow them to use these faulty assumptions to make terrible decision.

As a result, they are heading for disaster, and many people run a serious risk of running out of money well before the end of their retirement.
What can you do?

Simon Vella, chief marketing officer at pension comparison firm Profile Financial, told the Daily Mirror that everyone in this position needs to check what they are invested in - and whether it matches their attitude to risk. If you're unsure what kind of risk you are taking, it's well worth considering talking to a financial adviser about what they would recommend. If your pension savings aren't big enough to justify spending money on advice, you can talk to someone at Pensions Wise, and there are plenty of pension investment guides around online that will talk you through the basics.

You also need to consider the annual fees and whether they are competitive. Vella says many older schemes will have charges as high as 1%, compared to a typical current scheme which usually charges under 0.5%. Over the decades, you could be paying thousands of pounds over the odds for an out-of-date pension.

Finally you need to examine whether you can switch to a better pension, or at least a better investment within your current plan. It may even be worth bringing all your pension pots together under one provider, which will help you keep track of everything you have saved - and be certain nothing goes astray.

It's also essential to put your current pension plans through a calculator - inputting details of when you plan to retire, how much you intend to contribute each month, and how much money you need to live on in retirement. That way you can see whether you are on track, or whether you need to seriously consider one or more aspects of your pension saving.

But what do you think? Are you on track? Let us know in the comments.

Dream retirement destinations
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Dream retirement destinations

A study by MGM Advantage discovered that Portugal is the 10th most popular dream retirement destination among Brits.

You get the attractions of the sun, a more relaxed way of life, lower living costs and cheaper property. You can also benefit from pension arrangements that mean your pension rises with inflation.

And if you choose to, you can spend your time with the enormous expat population, feeling like you never left.

In the tradition of the Best Exotic Marigold Hotel, there’s a large number of people keen to move to India, partly in order to enjoy a much higher standard of living than they would be able to afford in the UK.

If course it’s important to consider that your state pension will not rise in line with inflation - so will halve in real terms during your retirement.

This part of Europe offers a great combination of some of the lowest living and housing costs on the continent, along with a more forgiving climate than the UK.

For that reason Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Greece and Turkey are a big draw for retirees.

However, state pension provision varies across the region, so you will need to check whether retiring to these locations will mean your pension continues to rise in line with increases in the UK, or will be frozen when you move overseas.

Italy is a country of contrasts, so anyone planing a retirement there needs to think carefully about whether they want to call a bustling city home, or whether they would be happiest in the mountains or by the sea.

Housing tends to cost less than in the UK, and in some regions it's incredibly cheap. Living costs are also lower than in Britain, and your pension will rise in line with increases in the UK.

Canada is a big draw for British expats of all ages. This spectacular country is known for being welcoming to people from all over the world, and in many cases has no language barrier for Brits. The quality of life is high, and the cost of housing lower than in the UK.

However, you will need to factor in the fact that your UK state pension will be frozen on the day you leave, and you will need some health insurance if you want to replicate the sorts of things that are available for free on the NHS.

As with India, the Far East offers an exciting and dramatic change from life in the UK, with much lower costs, which can buy you a higher standard of living (although bear in mind your state pension will be frozen).

You will need to consider the cultural and practical differences associated with the move, but you will have the opportunity to live in one of the most exciting places in the world.

The weather, lifestyle, space, and lower cost of living means that British expats of all ages are keen to move to Australia.

Property can be a bit of a stumbling block in some areas, as prices have gone up so much. The currency is also strong, which has posed some issues for those who receive their income in pounds, and there’s the fact that the UK state pension will be frozen if you move. However, if you can overcome these things, then a new life in the sun awaits.

The US offers much more affordable housing, and in many respects a lower cost of living than in the UK.

It appeals to those who don’t want to live with a language barrier, but want more space, possibly more sun, and an American Dream of their own.

There are some important things to factor in before you move, such as the additional cost of healthcare, and the exchange rate. However, one bonus is that your state pension will rise at the same rate it does in the UK.

France is close to home, and yet offers cheaper accommodation than the UK, a lower cost of living, and in many regions there’s better weather too.

Your pension will rise at the same rate it would in the UK, and at any time friends and family are just a short boat or plane ride away. It’s no wonder France is the second most popular dream destination for retirees.

It will come as little surprise that Spain tops the list - largely because it’s already the most common overseas retirement destination for Brits.

Millions of us have experienced the delights of the sun, sea, and the lower cost of living while we were on holiday in the country, so it’s hardly a shock that so many want to experience it on a full-time basis in retirement.

Huge falls in the price of property has made this a cheap place to buy, and the fact that your state pension will keep pace with rises in the UK means you’ll be able to maintain your standard of living throughout your retirement.


Understanding Retirement Risks
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