Steve Hunt: Important news for the over-50s
Earlier in the year I told you all about the change in the pension laws and how it will affect you.
Earlier in the year I told you all about the change in the pension laws and how it will affect you.Well, as we all know, time stands still for no one and as we approach the end of the year, the date of this important change is getting very close. This means that anyone out there who is thinking of taking their pension at 50 next year needs to be thinking NOW about what they are going to do.
Let me re-cap for you what is going to happen in April and how it may affect you.
From April 2010 the retirement age from which you are allowed to take your pension is increasing from age 50 to age 55 for both men and women. This means that if you were born after April 6, 1960 you will not be able to take your pension until after April 6, 2015. However, if you are aged between 50 to 54 now and are thinking about retirement, you have less than six months to do so or you will have to wait until you are 55.
There are some exceptions to the rule. Employment law usually overrides pension law, so if your contract of employment says you can retire at age 50 (e.g. with the police force) then you will still be able to do this, even after April 2010.
If you are undecided whether you should retire or not, consider this:
If you are aged 50 now, with a fund of 100,000, you could expect to receive an annuity of 5,478 per year. But, if you put this off until April next year you cannot then retire until 2014. If we then assume that in the next five years the global recession deepens and your fund only grows by 10 per cent, it will be worth 110,000.
However, because of increased longevity and low interest rates, annuity rates may also fall by 10 per cent (and to be honest, both of these scenarios are likely). In this case and based on these assumptions, you should receive an annuity of 5,771 per year.
So, by having to delay your annuity by five years, your income has increased by just 293 per year, but you will have lost five years of income at 5,478 per year, which equates to a total loss of 27,390 in income.
It may be that there are green shoots, with investments going through the roof and both interest and annuity rates rocketing in the next five years, but this is very unlikely.
DO YOU HAVE AN ALTERNATIVE?
Yes you do. One disadvantage of taking your annuity now is that you are tying yourself into that annuity rate for the rest of your life, which may be 10, 20, 30 or even 40 years. If you fall ill, you will not be able to take advantage of impaired annuities.
If inflation picks up and goes through the roof in seven years' time (which, again, is highly likely) and you are on a fixed income, this will be decimated by inflation.
The basic principle is to do something now, but consider all of your options.
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Tuesday 16 March 2010
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