Life After Work - Part 1!
Wednesday, February 28th, 2007My original plan for my first Blog was to write about the wonderful places to visit within the UK either for a weekend break, short stay or a main holiday.
However (and goodness knows why) my mind wondered to how much time we take off for holidays in the UK, how many of us actually use our full holiday entitlement, leave on time and have a lunch break etc. Then it suddenly leapt to ‘well if we do not take our holidays when we are working what will we be like when we can finally retire!! How would we use our time?
Of course it then goes beyond the point of when we can retire; to how can we afford to ever retire and what can be done about it?
The Pensions Reform introduced last year April didn’t go far enough for ‘tomorrows’ pensioners. Yes, it tidied up the previous mishmash of pension savings rules and legislation but it has penalized peo0ple at the same time. It has limited the amount entrepreneurs can save. And it has done little to encourage those employees who should be saving more to do so. What we really need is reform that makes people take their financial future seriously.
It’s no surprise that within the financial services industry there was much excitement in the run-up to the so-called A-Day (which was the 6th April 2006) – the date on which the new rules came into effect. But the general public failed to get as excited. A-Day was designed to replace all previous pensions legislation. Other than some transitional arrangements, the Government has effectively started pensions regime again from scratch. Now, anyone can save through any type of approved pension arrangement and all the rules are the same. Whether it’s a company scheme or personal plan.
On the downside people will be caught out as the A-Day reform has introduced an effective maximum size of GBP 1.5 million for an individual’s pension fund. If a fund creeps over this limit, it is severely taxed. The upper limit sounds huge but when converted to a pension it equates to an annual pension of roughly GBP 75,000 (a lot of money to a majority of us but also this is what a lot of people are striving for in their final pensions too).
Over time more of us will be caught in this especially as many salaries are racing ahead of inflation or national average earnings as employers compete for the best staff.
So the reform has made it difficult for the very well off to use pensions as their only source of retirement income. They benefit the least from the changes. However the more important issue is whether this reform will actually make us the mainstream public save more?? They are embarking on a new national pension scheme to be available by 2012. Working on the basis that there will be a compulsory contribution by us of 4% and 3% from the employer. Another form of indirect taxation!
Will 7% contribution be enough to provide ‘us’ with a decent pension? The answer is NO!
What are the options? Employer run pensions? Private contribution pension schemes? Any advice would be great 