Yorkshire Post - January 2007
Contributor : Jonathan Fry

I make no apologies for returning to the issue of pensions in this, my first column of 2007. It is likely to be a subject that influences much of our personal financial planning this year and for many years to come.

As discussed before Christmas, a considerable gap has opened up between the income we can earn while working and the pension we are likely to receive when we retire. The significant cost of final salary pensions schemes in the public sector and the Chancellor's plundering of private sector pension schemes with £5 billion a year of taxes are combining to put the squeeze on our investment in and expectations of the pensions we hope to enjoy.

The first significant research of the New Year, by the financial services group The Hartford, shows that 77 per cent of those aged 45 or over believe that the state pension will not be sufficient to maintain their standard of living in retirement and 36 per cent felt that they would have to continue working after the age of 65 for financial reasons.

So, what can we do to bridge the gap?

The easiest but not necessarily the most palatable option is not to retire. There is no obligation to retire at 65 and those who choose to delay the drawing of their state pensions will see the weekly payments increase over the period of the delay.

Similarly, those with private pensions can usually defer drawing their benefits, although it is advisable to check the terms of your particular pension plan, for some don't accrue additional benefits during the term of the delay, which makes any deferment rather pointless.

Another option is to purchase a pension annuity, using part or all of your pension fund. In effect, you swap your pension for an annuity that will either guarantee you an income for as long as you or your surviving partner live, or will allow a higher level of income drawdown over a specified number of years. For those who wish to gamble, part of the annuity could be taken to provide a regular income and the remainder could be invested in the stock market, offering the chance of gains but, equally, the risk of losses.

The Hartford research showed that while 47 per cent of those questioned thought that a guaranteed income was important in retirement, 58 per cent would be prepared to accept an element of risk in return for potential future growth.

A further reassuring finding of the Hartford research was that the reliance of consumers on the services of independent financial advisers, such as myself, was likely to increase in future because of the complexity of financial planning. Joking aside, securing a financially sound retirement at the time of your choosing is best achieved by taking the advice of professionals in the field. I would strongly advise against DIY pensions planning for all but the most capable amateur enthusiast.

© Yorkshire Post 2007