Pension age to increase after Osborne’s spending review

If Contractors ever needed a push towards self provision then the Chancellor will have given them one after announcing in the spending review that the increase in the state pension age for men and women would be accelerated to reach age 66 by 2020.

The idea of aligning the retirement ages for men and women is not a new one; in fact, the Government had already laid plans to bring the age to 65 for both by 2026. Osborne has simply accelerated the plan by six years which will apparently net the Treasury over £5 billion a year by the end of the next Government.

With the stress of Contracting, it is understandable that many of our clients don’t want to wait until the age of 65+ before hanging up their mouse mat and enjoying long days on the golf course. This makes the idea of self provision even more valid for Contractors, particularly women as they will be the most affected by the proposed changes.

New annual and lifetime allowances

The changes to the state pension were not the only announced this month. Osborne also announced a new £50k annual limit which is due to come in to force on 6th April 2011. According to the Treasury, this move will only affect 100,000 investors but we know that many of our higher earning clients will feel the effects as they are currently investing heavily into their pension to minimise their tax take whilst contracting.

The annual limit is not the only change to be announced as the lifetime allowance has been cut to just £1.5 million. This may affect more people than the Treasury has anticipated as some Contractors will have already reached this limit and will therefore no longer be able to fully benefit from fresh pension contributions.

There is protection in place for Contractors that are nearing retirement who may be close to, or have exceeded the lifetime allowance of £1.5 million which will be effective from 6th April 2012. Both the annual allowance and the lifetime allowance are not going to be indexed however, although this is due to reviewed in 2014/15, but failing a rethink this will mean these allowances will effectively fall each year as inflation takes its toll.

This means it will become more important than ever to review your pension regularly in order to ensure that the final value of your pension will fall within the new limit. Any amount over the limit will be heavily taxed which could have a significant impact on the final value of your pension. If you are concerned about the impact of the lifetime allowance then other options including regular savings plans, bonds and ISA’s could help you to save without endangering your pension pot.

Talk to the experts

As with any change to pensions, the devil is in the detail which is why it is important to talk to the experts if you have any concerns about your pension arrangement. Our pension’s advisers specialise in offering impartial advice to Contractors and would be happy to help you with your retirement planning.

To speak to an adviser call 0845 062 8888 or email pensions@contractorfinancials.com