Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
FOLLOWING a recent announcement in Parliament, National Insurance (NI) will be rising by 1.25 percentage points to help to make social care more affordable, with the rise also being extended to those working after their State Pension age. Dividend Tax rates will rise by the same amount.
That means the Government has broken its manifesto promise to not raise NI, VAT or Income Tax. Even with that cash injection questions remain about how much will really go towards social care given that the first use of the extra money will be to clear National Health Service backlogs after the pandemic.
Then there’s the state pension and the Government’s ‘triple lock’ which is supposed to ensure the payment rises by the highest of the rise in inflation, the rise in wages or 2.5%. This triple lock promise will be broken as well, at least for this year. Instead of rising by the official rate of wage increases, which will hit 8% this year as a result of job losses and the furlough scheme in the pandemic, that part of the triple lock will be suspended for the time being. A lower rise linked to inflation is likely to apply.
The Government’s squirming this week show what can happen when you try to solve long-term problems that have been ignored for too long. It tends to be expensive and leave lots of people annoyed with you.
Social care and a sustainable state pension are difficult problems for governments because they require long-term planning that doesn’t get much credit for the political leaders of the day. They require sacrifices today for benefits tomorrow.
Not so different, then, from the challenge we all face to prepare for our own old age. Individuals, as well as governments, have a responsibility to plan for their future to ensure they will be cared for. That means setting aside enough money so that you’ll have the kind of retirement you expect and, just as with the government’s triple lock policy, the earlier you address those challenges, the less painful the solutions will have to be.
That’s what makes awareness of pension and retirement issues at younger ages so important - and why Fidelity is supporting a campaign to highlight the importance of pension planning through Pension Awareness Day, which this year falls on September 15.
Fidelity has conducted research1 among UK workers over the past two years to see how their priorities around retirement have changed in the pandemic. It shows that 29% of workers have made changes to their retirement plans because of Covid-19 - an increase of a quarter compared to last year. Some 30% are delaying retirement to save more towards their pensions, while 18% are making up for lost savings following the pandemic. Workers are delaying their retirement by an average of two and a half years.
The results show how retirement plans can get blown off course, and underline why getting on top of your pension planning ahead of time can be so valuable.
You may still be years, or even decades, away from your own retirement but it’s still important to sketch out some plans now. Achieving enough savings to give you the retirement you want is not an overnight task. It takes years of contributions from you and perhaps an employer. And, while there are no guarantees of investment returns on your money, history suggests that those investing for long periods have been able to enjoy investment returns which add even more to their pot at retirement.
The action you take doesn’t have to be complicated. If you haven’t yet started contributing to a pension, that should be the first port of call. If you work for an employer that offers a pension scheme, find out what contributions it is willing to make on your behalf and ensure that you’re getting the maximum benefit if you can. If you’re self-employed or you’ve made maximum use of your workplace pension, consider starting your own pension via a SIPP - a self-invested personal pension.
Then you can start forecasting the kind of pension income you might be able to enjoy in retirement. To help those thinking about retirement understand the amount they will need to afford their desired lifestyle, Fidelity has created a calculator which covers the basic cost of living as well as additional outgoings such as holidays or home improvements.
Once they have determined this amount, the MyPlan tool provides guidance on how much they would need to save or potentially invest over a number of years to achieve this goal.
The sooner you become aware of the challenges you face in saving for retirement, the sooner you can address them, meaning you won’t have to take more drastic action later.
1 Fidelity International, September 2021. Research was conducted by Opinium Research commissioned by Fidelity International. The survey is based on a sample of 2,000 UK adults during August 2021.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from your pension savings will not be possible until you reach age 55 (the government is proposing to increase this to 57 from 6 April 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.
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