AS we have known for the past seven years, the age at which we can take our state pension is being gradually increased to reflect the fact that we are living longer.
The state pension age will be increased to 66 in 2020, before being upped again to 67 in 2028.
This is why when the engineer of these changes, a senior civil servant at the Department of Works and Pensions, announced his retirement lately, it caused something of a stir in the hallowed halls of Westminster. First, he’s retiring at 61. Second, he’s getting a £1.8m pension, which will give him an immediate payout of £245,000, and £85,000 a year.
The rest of us, meanwhile, if we are largely or wholly dependent on the state pension for our retirement, may face an extra year or two tacked on to our working lives, before we can afford to hang up our boots.
This brings us back to the famous comment from Steve Webb, the former pensions minister, when our freedom to take out large amounts from our personal pension began in April 2015. Steve said he wasn’t too worried that we’d wreck our retirement by blowing £250,000 of our pension savings on a brand new Lamborghini. Well, he had nothing to worry about, considering that, for Joe Soap and Mary Soap down on the street, the average personal pension in the UK is about £25,000.
The point is: we won’t all be getting the gold-plated personal pension of a senior civil servant - so let’s look, with the help of our friends at Scottish Widows, at how we are doing, on average, in saving for our own retirement. This data is fresh off the presses, based on a survey of 5,148 people in April 2018.
Well, the answer is, we’re doing a lot better than we were. In 2005, around 55 per cent of us were ‘saving adequately’ for retirement by putting at least 12 per cent of our salary into our pension.
Then began the years of austerity and, by 2013, this had slumped to just 45 per cent. However, fear not - the cavalry was on its way.
Auto-enrolment was kicking in, having begun with the nation’s larger employers (250+ workers) in October 2012, and trickling down to medium-sized employers with 50-249 workers in 2014. It then began in companies with 30-49 employees in August 2015, and in January 2016 began for companies with 30 employees or less, including the so-called micro-employers with just a few staff.
Under auto-enrolment, eligible employees are placed in a pension scheme, with the option to opt out later if they wish. Most don’t, however, and it is pleasing to see that this has resulted in 80 per cent of those in their 20s now saving for their retirement. In pension saving, it’s the first pound that works hardest for you, and the earlier you start, the longer that pound has to grow.
So auto-enrolment has gradually lifted the bar for pension saving, and today we’re back at the level of 55 per cent of us saving adequately for retirement. Minimum contributions now stand at 5 per cent of qualifying earnings, of which at least 2 per cent must be paid by the employer. In April 2019, this rises to 8 per cent of qualifying earnings, of which at least 3 per cent must be paid by the employer. It’s not yet perfect, but it’s a lot better than before.
Next week, we’ll continue our look at our pension saving behaviour, and the ways in which we can ensure we’re on track for an adequate, or even a comfortable retirement. Short of joining the Department for Work and Pensions, of course.
:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005. Further information is available on the Facebook page 'Kennedy Independent Financial Advice Ltd' or the website www.mkennedyfinancial.com
