Currently the British Government are looking at making changes to occupational pensions which could see millions of pensioners being left worse off. The changes being considered would mean that companies are allowed to water down the commitments they have made which would include allowing some companies to adjust the amount they increase pensions by using the Consumer Price Index (CPI) as a guide rather than the long used Retail Price Index (RPI). Both the RPI and CPI are calculated by measuring the cost of a range of different services and goods, however the notable difference is that the CPI does not include council tax payments, mortgage payments or other property related costs meaning the CPI figure comes out significantly lower than the RPI. For more information check out this pension review blog post from Cash Lady.
The proposed changes are being made due to the deficit in the current pension funds, which currently stands around £46bn. However, experts do predict that this figure could rise and become closer to £63bn following Brexit.
What does this mean?
Currently, people at pensionable age have a variety of different options as to what they want to do with their pension pot.
- Leave the pot untouched until it is needed.
- Buy an insurance policy which would guarantee an income for the rest of their life.
- Invest the post so that it gives an adjustable income, leaving the monthly pay out, and the lifetime of the policy flexible.
- Withdraw from the pot in a number of smaller lump sums.
- Take the whole pot in one go.
Those with larger pots do have the option of mixing their options meaning they can invest different lump sums into different types of policies, however due to the complexity of this option it is worth talking to a financial advisor.
What about when I reach pensionable age?
These proposed changes means that there is no longer the guarantee that once you leave work, and reach pensionable age, you would have a set regular income for the rest of your life and with the continuing reduction of the state pension, many people will be left in dire financial straits if they don’t take action today. If you are concerned about your pension, it would be wise to get to know your options and this handy pension calculator can help you find out your likely retirement income.