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Two separate reports have been released today that show the state pension age could rise faster than expected, which means that, if you're hoping for an early retirement, you'll need to concentrate even more on building up your own pension pot.
In a nutshell, the report that's become known as the Cridland Review recommends that the state pension age should rise to 68 by 2039 – under current plans, it wouldn't reach that age until 2046 – which will mean anyone currently aged under 45 would be impacted.
The second report, compiled by the Government Actuary's Department, considers two possible scenarios, either that an individual is in receipt of the state pension for 32% or 33.3% of their projected adult life in retirement. Under the latter scenario, state pension age could rise to 69 between 2053 and 2055, yet under the former it could hit that age between 2040 and 2042, and could even rise to age 70 for anyone born after 6 April 1986.
Perhaps unsurprisingly, the recommendations haven't been welcomed by younger workers, as Tom McPhail, head of retirement policy at Hargreaves Lansdown, comments: "This report is going to be particularly unwelcome for anyone in their early 40s, as they're now likely to see their state pension age pushed back another year. For those in their 30s and younger, it reinforces the expectation of a state pension from age 70, which means an extra two years of work."
The good news is that the measures "will help to keep the state pension sustainable in the long term," he says, and from a policy perspective it seems to make sense, given rising longevity and the increasing financial pressures of maintaining the state pension. However, this will come as little consolation to those facing extra years of work, which is why it's so crucial to do everything you can to boost your pension pot as much as possible.
This is particularly important given that, as it stands, few people appear to be taking the necessary precautions. Research from Prudential shows that, of those who retired last year, at least one in seven made no provision for their retirement, and as such now rely heavily on the state pension to provide an income. Furthermore, the new state pension is set to provide 35% of the income of this year's retirees – given that it only offers a maximum of £155.65 a week, the need for better preparation is clear.
"The retirement plans of younger generations are likely to change drastically unless they plan ahead, because they are likely to find their state pension age is significantly higher than they currently assume," added Vince Smith-Hughes, retirement expert at Prudential. "The best way for those planning for retirement to ensure they have the most comfortable life when they give up work is to save as much as possible as early as possible and, for many, to take regular professional financial advice."
One of the first things you should do, if you haven't done already, is get enrolled in your workplace pension scheme. Auto-enrolment should make this easier, and if your workplace hasn't got a scheme yet, they soon will do! Saving into a workplace scheme means you can benefit from tax relief as well as employer contributions, helping you build up your pot far quicker than if you were going it alone.
But why stop there? If you can, you may want to look to alternatives savings vehicles as well, such as an ISA. That way you can benefit from added flexibility while ensuring your savings remain tax-free for the long-term, and as we reported last week, stocks & shares ISAs could be particularly suited to retirement saving – even more so given their latest performance – so if you're comfortable with the risk, this could be worth considering.
However you choose to go about it, the most important thing you can do is get saving. That way, the later state pension age hopefully won't impact you too much – with the right pension pot, you may even be able to retire sooner.
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