How much will you need when you retire?
Recently the Pensions Regulator expressed concerns that employers running final salary or defined benefit pension schemes have underestimated life expectancy by two years. In addition the watchdog responsible for setting the parameters by which company money purchase or defined contribution group personal person schemes are valued is beginning a major review of the calculations and assumptions providers must use when setting premiums and sending out annual valuation statements. The expectation is that the Board of Actuarial Standards, responsible for this guidance, will, like the Pensions Regulator, demand more conservative assumptions to allow for our ever-increasing life expectancy.
Changes to assumptions will potentially throw into disarray government plans for a pension for all via the new Personal Accounts. Working out how much we each need to save for retirement is not an easy task, given there are at least eight indices measuring our life expectancy. However, one thing everybody agrees on is that we are living longer.
Pension tips
Consider salary sacrifice arrangements, which can reduce employer's national insurance contributions, which he may be prepared to use to boost your pension.
Make sure that your pension provides some degree of index linking. Decades of inflation during retirement could substantially reduce the purchasing power of your income.
Keep an eye on your state pension, and if necessary fill gaps in your National Insurance contributions. Unless you are retiring in the next couple of years, it is not possible to get a state pensions statement from the Department of Work and Pensions.
When setting up your pension, arrange for contributions to increase annually. Consider setting them up to increase on the day you get your annual salary raise.
If you are in a company or group money purchase scheme, ask member representatives to approach your employer about increasing his contribution as well as your own.
Levels and bases of, and reliefs from, taxation are subject to change.
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