Making your pension last a lifetime
You have worked hard all your life and hope that the funds you have steadily paid into your pension are going to last a lifetime.
But how long is that likely to be, how much of a pension are you likely to need, and how might you make it last a lifetime?
No one knows just how long you are going to live, of course. But it is likely to be considerably longer than the generations who went before you. Although data compiled by the Office for National Statistics (ONS) may give you some idea of average life expectancy rates in the UK, these vary widely according to where in the country you live, your sex and your current age.
A male child born today, for example, is expected to live for an average of just over 79 years, whilst a girl may live until she is almost 83. Men who have now survived until the age of 65 may expect to live an average of a further 18.5 years (until they are 83.5); women who have achieved 65 years may have an average of a further 20.9 years (until they are 85.9 years old).
Even if you delay retirement until you reach the current State Pension age of 65, therefore, you may still reasonably expect to enjoy a further 20 years of life – and if like many people you choose to retire earlier than that, the period is longer still.
How much of a pension do you need?
The level of pension income you need of course depends from one person to another and may depend on their lifestyle choices, their aspirations and expectations and the number of years they live in retirement.
According to research published by insurers Prudential on the 12th of January 2018, the current average level of income for those retiring this year stands at a record £19,900 a year.
Nevertheless, almost a half (46%) of those surveyed believed that they might not have done enough financial planning for the years ahead or were uncertain whether they had made adequate arrangements for the optimum use of their pension pot.
In a blog to mark Pension Awareness Day on the 15th of September 2017, an academic at Birmingham University recalled the liberalisation of pension rules in the UK two years previously.
Since 2015, members of Defined Contribution pension schemes may opt to take the entire value of their pension pot in a single lump sum, keep all or part of the funds in investments of their choice or purchase an annuity.
Whilst these pension freedoms have given consumers much greater choice in the way they use and draw down their pension funds, the freedoms also come with associated risks.
Perhaps the chief of these is a failure to seek independent professional advice before exercising choices. In her blog, the academic bemoans the trend towards savers drawing down their pension funds, but then investing the proceeds in poorly-performing, relatively low interest-bearing investments. There is cause for concern, she argues, that “the vast majority” of those entering retirement are shying away from the traditional types of annuity which provided a lifetime’s guaranteed and secure income.
Here at Independent Pension Specialists Ltd., we recognise the difficulties and complexities involved in making pension planning decisions that are in your own best interests. It is why all of the services and the independent advice we offer are designed with the sole objective of helping you to make your pension last a lifetime.
* The data used in this article is correct as at the time of writing.