The UK’s retirement landscape has changed radically over recent years. While the reforms that have been introduced recently are designed to make life better for those approaching and at retirement, they have yet to have the desired effect right the way across the board.
Some of today’s announcements in the Autumn Statement should go some way towards smoothing the path to retirement – however the government still has work to do to remove the obstacles blocking the over-50s from having the retirement they deserve.
Giving existing pensioners a decent boost to the basic state pension, finally confirming the level of the single-tier pension and taking the inheritance tax risk out of funds left in income drawdown are encouraging steps.
But the government must now act on unfair pension exit fees that hit almost 700,000 over-55s when they want to access their pension with their new freedoms. The freeze on the Isa allowance overlooks the way that today’s retirees are funding their lifestyle.
And while the final clarity on the £155-a-week single-tier state pension is welcome, further work is needed to explain what it means to consumers.
In addition, charging fees of up to 40 per cent on a pension taken out three decades ago is wildly out of line with the freedom over-50s have been given with their retirement savings. And if their pension company won’t give them access to their money in the fullest, they shouldn’t be stung by fees to switch.
Almost 700,000 over-55s face penalties for using their freedoms in the fullest and we urge the government to take action as quickly as possible.
Isas are an integral part of the retirement planning process – indeed more than 12 million over 50s now hold an Isa, and the significant savings they’ve have built up can help them generate a retirement income tax efficiently.
Now that pensions have become a much more tax-efficient vehicle for passing on savings – made even more attractive with the changes to inheritance tax on funds in drawdown – retirees are increasingly using Isas for their everyday spending. While the allowance has become a lot more generous, the freeze will disappoint all those using these popular accounts to fund their retirement.
No-one expected the chancellor to announce his ‘radical’ shake up of the pensions system, nor the speculated end to pension tax relief, to appear in this Autumn Statement. Whatever the Government decides next year, however, it looks as though pension tax relief as it is today is marked for the axe.
Saga is calling on the government to offer pension savers a ‘buy-one-get-one-free’ deal on their pensions – so that every £1 saved is matched and the maximum incentive is capped. This would apply to any pension saver, no matter how little or much they earned.
Two thirds of people say they would be more likely to save if such a deal was in place.
As for the state pension, more work is needed to explain how next year’s single-tier system will work. The current system is horribly complicated, and the new single-tier will eventually wave away this complexity. But next year’s generation of state pensioners need more help understanding what they’re entitled to.
A third of over 50s have no idea if they’ll be better off or worse under the new state pension, while less than one in 10 (seven per cent of over 50s know how to boost their pension before they finally claim it.
The government must do all it can so that over-50s can properly plan for retirement.