Article by Phil
Future pensioners will have to look after their finances better. That’s according to the latest report into the state of UK pensions by the Pension Policy Institute (PPI), which Pension Advisors review.
The key reason for the change is the migration of pensions from the old style Defined Benefit Pension Schemes (Final Salary) across to Defined Contribution (DC) Schemes. This change has been taking place for years now. But it is only recently that it has started affect retirees.
The big change, that pension advisors review, is that pensions will no longer be guaranteed for life. People will need to be much more careful in managing their pension pots, accumulated in their DC schemes.
The PPI has identified a number of areas that pensioners will need to consider and manage, including:
- Providing a secure income through retirement until state pension age
- Providing support to relatives
- Covering one off costs that could arise
- Saving for funerals
- Providing short term savings for expenses
The need for guaranteed incomes means that the need for annuities is likely to grow. Annuities have been in decline for a number of years recently, since the pension freedoms came into force. But it is likely that the nature of the annuity market needs to change. With new products developed to include an element of drawdown or graded income increasing towards full retirement.
There will also be a need for more advice.
Today only 20% of 55 to 65 years olds have seen a financial adviser. This is not enough. Penson Advisors reviews will be key.
The number of pensioners in employment rose to a record high of just under 1.5 million. That was up by 173,000 in the three months to June 22. With a 17% increase in the number of over 65’s in part time employment.
These figures seem to reflect the reality that people need to work longer before they can afford to retire. This almost a total reversal of the Covid related trend where many people decided to take early retirement. Hoping their pension pots would last. Current rates of inflation are starting to bite into those pensions. People with inflation increases built into their schemes are the ones with the best prospects. These are usually public sector pensions. Some private sector pensions will have inflation increases but not to the extent seen in the public sector.
