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Fifty-somethings swimming into deep water, warns Rockingham
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PostPosted: Tue Jun 09, 2009 9:11 pm 

Joined: Fri May 29, 2009 3:09 pm
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Survey reveals 80 per cent of 50-year-olds ignorant of imminent increase in pensionable age
Retirement plans in jeopardy for swathes of pensioners
Failure to act now could result in huge loss of income

THOUSANDS of 50-year-olds who expect to claim on their private pension next year will find the rug pulled from under them when they discover the rules have changed and they must wait a further five years, says independent annuities broker Rockingham Retirement.

From April 2010 the earliest age that both men and women will be able to claim their private pension will leap from 50 to 55. This means that those born after 6th April 1960 will not be able to take their pension until after 6th April 2015.

But a survey by Rockingham Retirement reveals widespread ignorance of the imminent change of rules.

“A massive 80 per cent of the people we asked had no idea that the rules are about to change,” says Rockingham Retirement’s MD Steve Hunt.

“It’s crucial that those currently aged 50 to 54 who are thinking about retirement act now as they have less than one year to do something about it – or else they will have to wait until they are 55.”

There are some exceptions to the rule. Employment law usually overrides pension law, so if a contract of employment allows for retirement at age 50 (eg with the Police Force) then this will still be possible, even after April 2010.

But this is unlikely to apply to the majority and the financial implications of having to wait another four years are likely to be harsh considering the economic climate.

“People currently aged 50 with a fund of £100k could expect to receive an annuity of £5,478.00 per year. But, if they put this off until April 2010 they would not be able to retire until 2014,” Hunt explains.

“If we then assume that in the next five years the global recession deepens and their fund only grows by 10%, it will be worth £110,000.00. However, because of increased longevity and low interest rates, annuity rates may also fall by 10% - and to be honest, both of these scenarios are likely. In this case and based on these assumptions, they would receive an annuity of £5,771.00 per year.

“So, by having to delay their annuity by five years, their income has increased by just £293 per year, but they will have lost five years of income at £5,478 per year, which equates to a total worth £27,390 in income.”

But there is an alternative to this unpalatable situation, Hunt adds.

“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.”

As well as the conventional annuity covered above, there are a number of alternative strategies:

With-profit annuities can help to hedge against the effects of high inflation, should this occur in the future.

Temporary annuities are fixed for five years, with the option to then revisit, again taking into account any changes in circumstances.

Impaired or enhanced annuities, including smoker rates, tend to be higher than traditional annuities – sometimes much higher.

Impaired or enhanced with-profit annuities can give significant benefits over traditional annuities.

Unsecured pension or income drawdown - where Rockingham has some of the best deals in the UK. These allow pensioners to take their income now, have total flexibility and the option to leave their whole pension fund to a partner, family or even friends in the event of their death - sometimes tax and IHT free.


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