PUTTING enough savings aside for a comfortable old age may be the last thing on your mind during the Covid-19 outbreak.
But, even before coronavirus struck, there was widespread concern that many people will struggle to fund their needs in later life.
And, unless workers begin tucking more cash away, this situation could be even worse in the future due to the impact of the economic downturn brought on by coronavirus.
A new survey by insurer Aviva has found that nearly 60 per cent of workers aged 45-60 are worried they will not have enough money to provide an adequate standard of living in retirement.
However, only one in 10 of in this age group are planning to increase their pension contributions in the future – although more than one in six have said they think will need to work for at least six months or more past their retirement date, or they cannot see a situation where they can even think about a retirement date.
Those aged 35-44 are most concerned about their level of retirement finances (66%).
The research also suggests that self-employed workers are less likely to prepare for their retirement, with almost one in four not taking steps to ensure they have adequate income for later life. This compares to 13% of those in full-time work.
The reality is this; each of us are now living longer than ever and for most, especially those who have been working for a number of years, thoughts turn to what kind of retirement we’d like, and importantly what we can expect.
We’ve known for some years that the ability of the state to provide for us in retirement is diminishing, and the phrase “pension time bomb” is part of common parlance. For this reason, the subject of pensions is, or should be, very high on our financial planning list of priorities.
Since 2012 and the introduction of pension auto enrolment, every organisation is required to provide employees with a pension scheme and as such there is no reason why everyone who is working shouldn’t already have some pension provision.
However, for those getting near to or even entering their 50s, pensions take on an even greater importance. Where once retirement seemed like a distant dream, in reality, it’s not too far away by this stage.
Pensions can be a complex area and there are a range of issues to consider however among the most important that individuals should be aware of is that of pension withdrawal.
Since 2015, anyone 55 or over, and who is or was a member of a defined contribution scheme, now has the power to access their entire pension savings pot and do anything they wish with it.
This undoubtedly brings a new flexibility and freedom to a system that was once fairly rigid. This is good news but with this freedom comes a huge level of responsibility. Not just for an individual but for their family.
Defined contribution schemes include workplace, personal or stakeholder pensions, and you have a number of options on how you access the funds, including withdrawing the lot although in most cases that would be the last thing you should do due to the potential tax implications.
The important point is that all the options have implications, both negative and positive, all of which can impact your financial security. Each person’s plans for retirement are different, and any decision should be based on both your personal and financial situation, not just now but also with some thought to your future.
The choice to mix your options can be best for many people, with some opting to take a lump sum, up to 25% of the pot and then using the remainder to buy an income for life. One significant benefit of the new rules is that you can tailor your plans to how and when you use your money, and indeed when you stop contributing to it.
For thousands of people in Scotland who have already breached the big 50 mark, there are some big decisions to think about and make. Decisions which will last a lifetime.
There are no right or wrong decisions, only those that meet your specific requirements. There is a plethora of information out there and the internet can be a good friend. However, obtaining professional, face to face, independent advice should be a prerequisite, not just a nice option. It could make all the difference.
Allan Gardner is financial services director at Aberdein Considine
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