Pensions for older people
Think You’ve Left it Too Late?
A lot of people in the fifties and sixties are concerned at their retirement prospects.
Either they haven’t bothered saving or their savings don’t look as if they’ll suffice – particularly with the very low annuity rates on offer currently.
For the first category there’s some good news in that the Government offers a Minimum Income Guarantee. This operates on a means tested basis which means you have to list all your savings and other income. The last time we looked this Guarantee Credit was £130 a week for a single person and £198 for a couple – there are top-ups for those with disabilities. There are also special rules for those with small workplace pensions.
But for the rest of us, any topping on has to come from your own resources.
For those who’ve tried to save but whose pension funds – or other retirement plans – haven’t done as well as hoped for, the comfort is that at least they’ll get this too. (We’ll ignore the fact it’s not that fair in that they presumably made some sacrifices to save while the others weren’t bothering and can qualify for means-tested help).
However there are various alternatives to consider rather than accepting what is still a pretty low income.
Your main option is to reduce your consumerist expectations and keep working!
This may not be as bad as it sounds in that it’s certainly a way to stay healthy. (Many early retirees seem to peg it somewhat early or at best lapse into the torpor of the extremely bored). And maybe it’s time to give up on always having the latest accessories anyway.
As far as working goes: The fact is there are quite a few business opportunities out there that could be suitable for the “elderly” ie require brain rather than muscle power and the wisdom that comes with experience. With the advent of new working practices ie part -time, home based, computers and the internet etc it’s not necessarily as bad as it sounds.
It’s never too late to start a pension
It really is never too late to start a pension because of the tax incentives involved and the number of different ways that you can go about arranging things.
While it is much cheaper to save over a longer period, ie to start as young as possible, don’t give up hope no matter how old you are. (See cost of delaying your pension).
You could even start a pension at the moment you retire. To see an example of how click here;
The best thing you can do is speak to an IFA who should have several useful ideas for you.
Be wary that recommendations may be linked to the commission your IFA may get.
By law, you’ll be shown their commission before going ahead with anything. Don’t be shy about challenging them about it.
To counter this problem:
- Shop around for an IFA. Go for word of mouth recommended ones.
- Use more than one IFA and compare what they say. don’t feel bad about playing them off against each other.
- Consider paying your IFA fees rather than commission. Read about fees vs Commission now
Also check out public type sources like the TUC, (Tel 020 7636 4030) your local Citizen’s Advice Bureau and even personal finance journalists on national newspapers. These guys always need something to write about and most have a “what the experts say” type section – where they could use your case.
See Useful Contacts for a few other possible public sources
How to start a pension at the moment you retire
Say you’re a 65 year old male. You’ve saved £12,000. You put this into a pension. You immediately get £8,000 added by the taxman at no extra cost to you (assuming you’re on the 40% higher rate tax band) or £3,000 added if you are a basic rate taxpayer.
You’ve now got £20,000 or £15,000.
You can take 25% of this as an immediate tax free lump sum – so you get £5,000 or £3,750.
You then buy an annuity with the remaining £15,000 or £10,750. At present rates this could get you (depending on your exact age, gender and medical conditions and your taxpayer status) around £600 to £850. This may not sound much but is a useful boost to the basic state pension of around £5,000 a year – and you’ve got your tax free lump sum to spend as well!
This trick is called “immediate vesting” and there are rules now in force to stop you doing this for larger sums – and the downside is that if you die shortly afterwards, the annuity sum will be lost.
So while the return on a sum fed through a pension plan is good, there are always downsides. Remember that there is no such thing as a completely free lunch.
If you are relatively old and want to consider saving for retirement, there are many different possibilities.