Planning for change....

Rules are rules – and as pension legislation constantly changes, all we can do is react to these changes and put in place planning to adapt.

The first important issue – is managing expectation. I assume that I will not get a state pension. If I do get anything, at any age it will be a bonus – and greatly enjoyed. But my focus is on building up my personal pension provision to work towards the pension income I would like when I reduce/stop work.

That said many do rely on the State pension. So what would it cost for those from 30 – 47 (who will be affected) to replace the index linked benefit they would lose in that year. As per the article, they will be down £10,000. The state pension currently is a flat rate of £159.55 per week (£8,296.60 per year) – this is for those with 35 years of working who have paid/been credited with sufficient National Insurance contributions.

The change will effect those born between 1970 and 1978 so what does a 47 year old have to save from now to replace it – to prepare for the change and ensure that they don’t have to work longer than they would like….£30 per month. That’s £1 a day (this is assuming 4% growth over 21 years)

Alternatively, what about saving £24, in a pension. This £24 ( 80p a day) will be grossed up to £30 with the tax relief offered on pension contributions (at 20%) much better being able to meet your goal while paying less. Even better is to stick with the £30 which is grossed up to £37.50 and have more! (Of course, please remember a pension is a long-term investment, the fund value may fluctuate and can go down and your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation!)

There are many things beyond our control but, with a small amount of planning, we can prepare for these changes. Never mind the daily coffee – put your 80p towards your retirement plan!