Over recent years, the state pension has made the headlines fairly regularly. One of the reasons for this is the increase in state pension age. Now, the government is proposing to increase the age at which people can access private pensions. Depending on your position, this may be a big deal or a moot point. Here is what you need to know.
The proposed change
Back in 2014, the coalition government announced that it would increase the age at which people could access their private pensions from 55 to 57. It then proceeded to do nothing further about it. To be fair, the run-up to Brexit, the implementation of Brexit and COVID19 has been taking up most of its attention.
Now, however, a mere 7 years later, the government finally seems about to act. The official reason for its move is that it wants to give people longer to save for their retirement. They argue that people are now living longer and hence will need larger pension pots to see them through their silver years.
This may well be true. Cynics however might wonder just how much difference an extra two years of saving is going to make to the average individual. An alternative explanation is that the government simply wishes to retain the 10-year gap between the age at which you can access a private pension and the age at which you can access the state pension.
If so, the rationale may have less to do with economics than it has to do with politics. Quite bluntly, increases in the state pension age have the potential to be very controversial. They may become even harder to stomach if people dependent on the state pension see people with private pensions retiring long before they can.
Why it may be a big deal
The government taking any sort of action on pensions is likely to raise alarm bells right now. Quite bluntly, the government is going to have to settle the bill for COVID19. Realistically, this means it either has to grow its revenues or cut back on its expenditure. Both pose challenges.
It’s probably safe to assume that the government would like to grow its revenues organically. In other words, they’ll want to drive the economy forward in the hope that higher tax revenues will be a natural result. If this isn’t enough, then they’ll have to increase taxes and/or reduce public services.
Going by the last budget, the government doesn’t appear to be confident that economic growth will pay the COVID19 piper. They effectively raised Income Tax and VAT by freezing the thresholds for both. They also raised Corporation Tax, albeit, only on larger companies.
Pension pots are a riskier target, especially since pensioners get out and vote. A grab on some of them, however, especially higher-value ones, could be lucrative and cause minimal political fallout.
Why it may be a moot point
Realistically, very few people are likely to want to access their pension pots at 57, let alone 55. Those who do are likely to be either higher earners or people in poor health. The former are likely to be able to find a way to manage for another couple of years. The latter are likely to be able to qualify for special assistance and/or to be able to access their pensions early.
The government’s move could, however, serve as a wake-up call to pensions savers (and indeed non-pensions savers). Key point number one is that the government does have a point about the importance of saving for later in life.
Key point number two is that the government can exert a lot of control over pensions. It may, therefore, be advisable to diversify your retirement savings.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested
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