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Steve Hunt: Retirement deadline looms for over-50s
NOT many people know this, but 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.
NOT many people know this, but 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 49 to 54 now and are thinking about retirement, you have less than one year 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. 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 worth 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 principal is to do something now, but consider all of your options.
As well as the conventional annuity covered above, also consider the following:
1. With-profit annuities can help to hedge against the effects of high inflation, should this occur in the future.
2. Temporary annuities are fixed for , say, five years, with the option to then revisit again taking into account any changes in your circumstances.
3. Impaired or enhanced annuities, including smoker rates, tend to be higher than traditional annuities – sometimes much higher .
4. Impaired or enhanced with-profit annuities can give significant benefits over traditional annuities.
5. Unsecured pension or income draw- down – where Rockingham has some of the best deals in the UK. These allow you to take your income now, have total flexibility and the option to leave your whole pension fund to a partner , family or even friends in the event of your death – sometimes tax and IHT -free.
As can be seen, the retirement income arena is perhaps more complicated and there are more options available, than people at first realise.
For further information on the above topics or assistance with retirement income planning, call Rockingham Retirement on 0800 1444 144.
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Wednesday 23 May 2012
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