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News
Reckoning on a Long Life
How long will you live?
The answer is probably longer than you think. A man aged 55 now has nearly a one in four chance of reaching 95, while the odds for a 55-year-old woman are well over one in four.(1)
Pension schemes have been struggling with the issue of longevity for some years now. One of the reasons why so many private sector employers have closed their final salary pension schemes is the growing cost of providing an income for their longer-living pensioners.
Increasing life expectancy and the effect it could have on you and your family is also something that you should consider building into your retirement plans. For example:
• When should your retirement date be? The government has already legislated to increase the State Pension Age in stages to 68, with the first increase starting in 2024. By retiring later or phasing your retirement, you may be able to increase your pension fund.
• Will you have enough income as you approach your nineties? If you choose to buy a level annuity -as most people with a personal pension do -the amount you receive will remain at the same level no matter how long you live.
That starts to matter as inflation takes its toll. If inflation averages 2.5% a year for 20 years, the buying power of £1 will fall to almost only 60p. But if inflation matches the experience of the last 20 years (to March 2008), then buying power would drop to barely 49p.
• What plans have you made to cover the potentially huge costs of care? A longer life is not necessarily a longer healthy life. Long term care expenditure usually comes late in life -just when inflation has cut the value of that fixed pension.
• Does your inheritance tax planning need to be reviewed? On the one hand, your children would probably prefer not to wait until they had retired to receive their inheritance, but on the other, you might need to hang on to your capital to meet your own needs.
Addressing these questions is not easy, but that does not mean they should be ignored. The sooner you start the planning process, the better. Do nothing and you could spend a very long time regretting it.
The Financial Services Authority does not regulate tax advice.
1. www.lifetrust.com
How long will you live?
The answer is probably longer than you think. A man aged 55 now has nearly a one in four chance of reaching 95, while the odds for a 55-year-old woman are well over one in four.(1)
Pension schemes have been struggling with the issue of longevity for some years now. One of the reasons why so many private sector employers have closed their final salary pension schemes is the growing cost of providing an income for their longer-living pensioners.
Increasing life expectancy and the effect it could have on you and your family is also something that you should consider building into your retirement plans. For example:• When should your retirement date be? The government has already legislated to increase the State Pension Age in stages to 68, with the first increase starting in 2024. By retiring later or phasing your retirement, you may be able to increase your pension fund.
• Will you have enough income as you approach your nineties? If you choose to buy a level annuity -as most people with a personal pension do -the amount you receive will remain at the same level no matter how long you live.
That starts to matter as inflation takes its toll. If inflation averages 2.5% a year for 20 years, the buying power of £1 will fall to almost only 60p. But if inflation matches the experience of the last 20 years (to March 2008), then buying power would drop to barely 49p.
• What plans have you made to cover the potentially huge costs of care? A longer life is not necessarily a longer healthy life. Long term care expenditure usually comes late in life -just when inflation has cut the value of that fixed pension.
• Does your inheritance tax planning need to be reviewed? On the one hand, your children would probably prefer not to wait until they had retired to receive their inheritance, but on the other, you might need to hang on to your capital to meet your own needs.
Addressing these questions is not easy, but that does not mean they should be ignored. The sooner you start the planning process, the better. Do nothing and you could spend a very long time regretting it.
The Financial Services Authority does not regulate tax advice.
1. www.lifetrust.com