Change is the only constant for lifetime savings
History doesn't record how the Greek philosopher Heraclitus managed his finances, but his maxim 'change is the only constant' would have served him well in today's ever-evolving savings climate.
Philosophising in Ancient Greece probably didn't offer much in the way of workplace savings schemes, and Heraclitus was doubtless referring to far more elemental forces than the personal finance landscape. However, it doesn’t take a great thinker to realise that, while individuals are being asked to take far greater responsibility for their own retirement savings, the parameters within which they must do so are constantly evolving.
In the last three months alone, we’ve seen changes and hints at future movements that could affect retirement savings. The March 2017 Budget included a reduction in the Money Purchase Annual Allowance from £10,000 to £4,000 which will affect the way individuals pay money into their pensions once they have started to withdraw funds.
A review of the state pension age by former CBI leader John Cridland could drive less generous state provision, delivered at a later date. The launch of a green paper into the future of defined benefit pensions raises questions around whether struggling employers should be able to reduce or even remove inflation-linked pension increases.
Someone who is 50 today will see at least three more general elections, 17 budgets, an equivalent number of new-style Spring Statements, and one Brexit before they reach their current state pension age of 67 in 2034.
Time for plenty of revisions
That’s plenty of opportunity for revisions to current legislation, tweaking of savings boundaries, new taxation regimes and more. One single measure - the Lifetime Allowance which determines how much an individual can save in a pension at a preferential tax rate - has changed eight times since it was introduced in 2006.
Those with longer memories will argue that this is nothing new (after all, change as a constant has a lengthy history). Women who opted for the ‘married woman’s stamp’ reduced National Insurance Contributions in the 1960s and 1970s are now discovering that there was small print attached which would affect their state pension; and the Second Earnings Related Pension Scheme (SERPs), replaced by the State Second Pension in 2002 then abandoned altogether in 2012, brings a whole host of complexities when it comes to working out retirement income.
The impact of unexpected change
The changes to women’s state pension ages that have driven the WASPI (Women Against State Pension Inequality) campaign is an even clearer demonstration of how unexpected legislative change can affect retirement plans. Women have seen their state pension age increase as a result of pensions equalisation between men and women. But WASPI claims that the women born in the early 1950s were not given sufficient time to make alternative financial plans to cover the gap between their original, planned state retirement age and the new extended age.
And that’s just legislation. Individuals’ personal aspirations, employment plans and financial circumstances will also change and evolve over a lifetime. Our goals today could differ substantially tomorrow, whether through preference, or as a result of unexpected changes in our work and personal circumstances.
Helping people to feel more in control of their finances and to have a financial plan that can respond to normal ups and downs as well as external change gives them the best possible chance of making the most of their savings, whatever current and future legislation might bring. That holds true for everything from budgeting and debt reduction to long term savings and retirement. Change is inevitable – but the need for employees to manage their finances successfully for life is a constant.
This article was provided by Close Brothers.
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