In just over a couple of months’ time, the Government’s retirement revolution will be under way, giving people aged 55 and over much more freedom and choice over their savings pots.
From early April, people will no longer be herded towards using their defined contribution (DC) pension pot to buy a retirement annuity, which gives them a yearly payout.
While annuities generally act as a guarantee that someone will not outlive their savings, they have been controversial in recent years, often due to people failing to shop around to get the best deal for their circumstances.
From April though, people will instead be able to take their pension pot as they want, when they want it, subject to their marginal rate of income tax in that year. They could take it all in one lump sum or in a series of slices.
The changes do not apply to people with “gold-plated” final salary pensions, which are becoming increasingly thin on the ground, as these already provide someone with a guaranteed income after they retire.
So what will this new era of greater choice look like?
Well, firstly, we’ve recently been told by the Government what the new free, impartial guidance which will be offered to anyone who could take up these new freedoms will be called. The guidance, which will be offered by Citizens Advice and the Pensions Advisory Service will go under the name “pension wise”.
In order to ensure that the guidance brand is trusted, the imitation of pension wise will be illegal and anyone seeking to falsely pass themselves off as the service could face prosecution.
New research has also emerged which suggests that the world of work and retirement could see a dramatic shift in the coming years.
Ros Altmann, the Government’s older workers champion, recently commissioned a study among more than 2,000 retired and non-retired people over 50.
The survey, which looked at attitudes towards working in later life, found there could potentially be a large increase in people working beyond the age of 65 in the coming years. In fact, t he survey found that the “overwhelming majority” of people want to keep working until the age of 65. More than half of those surveyed want to still be in work when they are between the ages of 65 and 70 - although preferably on a part-time, rather than a full-time basis.
Dr Altmann says that if the results are applied to the whole UK population, this suggests that 4.8 million people want to keep working and not be retired between the ages of 65 and 70.
Currently, there are around 1.2 million over 65s in work, so these findings suggest that there is a potential for a significant increase in the number of people working in later life.
So as the new era of greater choice dawns, is it time to look again at what our perceptions of “retirement” are - and perhaps change them?
Dr Altmann argues that traditional ideas of retirement, where you reach a certain age and stop working completely, are simply “outdated”.
According to her findings, more than one third (36%) of those who are already retired would advise people to work part-time before retiring altogether.
Dr Altmann said that one “fascinating finding” which came out of the research is that nearly half of over-50s surveyed were unaware that they could potentially work beyond the age of 65 without having to pay national insurance.
This suggests there is perhaps more work to do to help people better understand the potential benefits of working longer if they wish to.
Dr Altmann also says that to help make working later in life a reality for those who want to, employers will also need to make some changes.
She says: “If employers can help people to combine training for new roles, or improving their skills, with flexible working as they get older, the survey suggests there would be a major increase in wellbeing for our ageing population, as well as better economic growth.”
ARE... THE NEW ‘PENSIONER BONDS’ RIGHT FOR ME?
The Government’s new market-leading pensioner bonds have been selling like hot cakes after they were launched earlier this month.
The bonds are aimed at people who are aged 65 and over. There is a one-year bond, which pays a rate of 2.8%, and a three-year bond, which pays 4%.
Interest on them is paid yearly and savers must have at least £500 to invest in a bond and a maximum of £10,000.
The bonds are subject to tax, but non-taxpayers can claim tax back from HM Revenue and Customs (HMRC).
They have no “right to cancel”, so you need to be sure you want to invest.
If you are trying to decide whether to go for the one-year deal or the three-year option, consider what Martin Lewis, founder and editor of MoneySavingExpert.com, has said on the matter.
“The most important thing to understand is if you are only going to do one bond, do the three-year that pays 4%, not the one-year that pays 2.8%,” says Lewis.
“That’s because you only lose 90 days worth of interest if you withdraw early, therefore you can get the three-year bond, take your cash out after a year and you earn 3%, which beats the one-year bond.”
Financial fact: Around one third of balances in easy access savings accounts are held in accounts which were opened more than five years ago, according to research by the Financial Conduct Authority (FCA).
Savings providers will generally pay lower rates of interest on accounts that were opened a while ago compared with those opened more recently.
Around 93% of UK adults hold a savings product and easy access accounts are the most widely-held type of savings account, collectively containing £354 billion-worth of savers’ cash.