For generations, the notion of a deserved and comfortable retirement has motivated many workers throughout the course of their lives. Thanks to a combination of both private and public sector pension plans, those who have worked hard during their careers have historically been richly rewarded in retirement.
This is no longer the case, however, as while private, workplace pension plans have become compulsory in the UK the government is set to make dramatic cuts to state provisions. Triggered by sustained economic uncertainty and exacerbated by the volatility caused by the Brexit vote, these proposed changes could increase the average working age further while diminishing tax advantages.
How to Cope in the Face of Inevitable Pension Cuts
Both government officials and independent financial experts have suggested that these proposed cuts are inevitable, while the autumn statement also offered an insight into the exact form the pension reform is likely to take. There was a clear focus on minimising the levels of tax relief available through retirement savings, for example, while it was also suggested that the so-called state pension ‘triple lock’ (which provides assurances regarding incremental payment increases) may also be scrapped in a bid to save money.
This increases the considerable risk of pension funds stagnating and diminishing over time, while Chancellor Philip Hammond’s assertion that real wages in the UK would not grow for at least a decade will also prevent citizens from saving for their futures.
These cuts are likely to hit low-income citizens and households the hardest, as this demographic is the most reliant on state pension provision during retirement. The growing chasm between stagnating earnings and the rising cost of living will also make state pension cuts an issue for everyone, however, although those with a proactive outlook and willingness to explore creative savings vehicles will have an opportunity to safeguard their fiscal future.
One of the first steps that you should take is to review your budget and the way in which you deploy disposable income. This will enable you to identify key opportunities to save and reduce your monthly expenditure, creating more disposable income that can be committed to your choice of savings vehicles. You can subsequently seek out more rewarding and innovative saving initiatives, as you look to increase your return and create a viable fund for your retirement.
The Bottom Line: SIPPs and Managed Portfolios
In the modern age, managed investment portfolios offer the ideal balance between risk and rewarding the current climate, while also offering you access to a diverse range of assets. These portfolios, which include variable combinations of stocks and other investments, can be tailored to suit your prevailing risk appetite and can potentially deliver a return that allows you to plan for your future.
SIPPs (self-invested pension plans) are a progressive example of this, as they offer generous returns while also delivering flexibility in terms of how and when you access your retirement funds. SIPPs offered by outlets such as Bestinvest also offer consider tax advantages to savers, which will in turn negate some of the proposed government reforms for state pension plans.
This type of pension plan could become increasingly valuable in the years ahead, particularly as earnings continue to stagnate and the economic climate worsens.
Founder Dinis Guarda
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