The changes in a pension legislation

Thanks to the recession, demographic changes and advances in health care, the retirement landscape is shifting so fast that it is easy for today’s fiftysomethings to lose their footing.

Clive Butler of Aviva, the pension group, said too many of them were still chasing an “unrealistic dream that is well past its sell-by date”.

For people approaching retirement, now is the time to indulge in some serious crystal ball gazing. Last week’s Comprehensive Spending Review will have knock-on effects for the rest of your life, so it’s important you make preparations and understand how it will affect you.


The decision to change the state pension age faster than planned may not be the deciding factor in everyone’s retirement plans. David Sinclair, head of policy at the International Longevity Centre think tank, said the link between the age at which people retire and the age at which they take their state pension was relatively weak.

“A change in the state pension age does not automatically mean a change in retirement age,” he said. However, there are other changes afoot that may affect the age at which you give up work, and how that retirement happens.

For a start, the Government has announced changes that will affect public sector pensions, making them less attractive. It has also announced a change in the pensions saving credit that will leave some pensioners worse off.

“The message is clear – all of the momentum is towards self planning for retirement,” said Tom McPhail, a pensions expert at Hargreaves Lansdown. “This is a new world order. It’s your retirement and your responsibility.”

The default retirement age of 65 is being abolished from October next year, providing even more impetus toward people working later.

The recession is also having an impact on people’s pension pots. Not only are they worth less after problems with the stock market, but a low-interest-rate environment combined with relatively high inflation has made it more difficult for pensioners to live on a fixed income.

What’s more, for those approaching retirement, buying an annuity or income for life has become more and more expensive (annuity rates are at record lows) thanks to the policy of quantitative easing, as well as forthcoming rules for insurance companies called Solvency II. There’s also the fact that people are living longer.

The net effect of all of these factors will be a complete change to what retiring means. “We need to radically rethink it,” said Ros Altmann, the pensions expert. “Currently it’s a very old‑fashioned notion and what used to be called the age of retirement should now be thought of as bonus years.”


Mr Osborne’s change to the state pension age is just part of a general trend toward people retiring later, some through choice and some because they simply cannot afford to give up work.

“Retirement doesn’t suit a lot of people,” Ms Altmann said. “They get bored. Also, what kind of life is it if you don’t work but you also don’t have any money?”

Mr Sinclair said that although most people’s retirement expectations tended to be modest (“gardening, a bit of travel and more time with the grandchildren”), even these might not be achievable on many people’s pension pots. He said the answer lay in a redesign of the workplace, with more people retiring gradually.

Ms Altmann agreed. “People have been misled into thinking that just saving more will do the trick, but the savings will still not be enough for many people. Employers are going to have to engage with gradual retirement. This is an argument that has to be had,” she said.

“Imagine the difference between working two to three days a week and having reasonable money versus being at home seven days a week with no money. We need a social revolution.”

Steve Lowe of Living Time, an annuity provider, said his company now classed retirement as having two phases. The first is your “prime-time” retirement, before the age of 75, when you may still be able to work flexibly, while the second is your senior years, when you may need extra care.

Ms Altmann said older people might need extra legal protection when asking for part-time work, in the same way as young parents, and she suggested that organisations such as Saga (for which she is a spokesman) might end up drafting guidelines on flexible working for older people.


Know your enemy. Retirement and pension experts have plenty of advice for those who are worried about how the “sober decade” will affect their retirement plans. The first thing to do is work out what you already have. You’ll be able to get a state pension forecast from the Government, and you can also get a forecast for any occupational pensions you have.

Unless you have a final salary pension, you may well need to buy an annuity with your pension pot. You can find out roughly how much your pension pot will buy you by using an online annuity calculator such as Hargreaves Lansdown’s.

“Many people will be disappointed at this figure,” Ms Altmann said. Mr McPhail added that he did not see annuity rates recovering any time soon, meaning that this level of income was unlikely to improve much.


Ms Altmann suggested that prospective retirees “start planning their life in a different way”. “Think about it like this. ‘What would I do if I got to 66 and had another 25 years of life ahead of me?’,” she said. ” ‘How is my life going to go?’ Maybe you want to travel or go on holiday in your retirement, but you will need money.”

With this in mind she suggested that those approaching normal retirement age begin a dialogue with their employers. “As of next year they can’t just sack them for being 65,” she said. “They are going to have to engage with them. People need guidance, financial education and lifestyle planning.”

Mr Bolton from Aviva said those approaching 65 needed to realise that “retirement doesn’t happen on a day, but will happen over 10 years between the age of 60 and the age of 70”.

Most importantly, do not underestimate the amount you need to salt away to build up a decent pension pot. A 35-year-old will need to save 32pc of their wage in order to receive a retirement income two thirds of their salary at 65.


Retirement experts are clear on one thing – if you aren’t well, you can’t prioritise your earning power in later years, so do everything you can to keep well.

“If you get ill all bets are off,” Ms Altmann said. “Keep fit and healthy. Don’t think of yourself as old, because you’re not.” Mr Bolton agreed that people should try things such as giving up smoking and taking plenty of exercise.


As well as getting a pension forecast, make sure you are clued up about what you can do with your money when you reach retirement age. Get advice and use all your options. You don’t have to spend all of your pension pot on an annuity. “Mix and match,” Mr McPhail advised.

He said those going down the annuity route should take note of what inflation could do to their income if they plan to buy a level annuity, where the income stays the same. However, inflation-linked annuities are very expensive, he said.


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