April 2011
Pulling the Punches on Pensions - Increasing Retirement Age v RATS
Many of us believed at the start of our working life
that we would work hard, pay taxes and social security and
after 45 years, retire at the age of 65 on a states pension
which would keep us in the manner to which we had become
accustomed.
If we were lucky we worked for a Company that provided a non-contributory, final salary scheme or at least a defined contribution scheme, which would be index-linked and guaranteed and at an agreed date in the future, whether that be at aged 55, 60 or 65, our pension would begin. Many others started their own private pension plans, through life companies and made or make monthly or annual contributions, in the hope that this would provide them with sufficient pension for their retirement, but again this would not be forthcoming until the age of 60 or 65.
Most of us also believed that at aged 65 we would commence drawing our States Pension, currently £179.97 per week and now we are told that if the States make amendments to this currently policy, we will have to wait until we are 67 to enjoy these benefits.
The minister for Social Services, Deputy Ian Gorst, said this week, April 14th
’With many of us living longer, the amount of money being
paid out from the Social Security Fund will soon be greater
than the contributions coming in. If we do nothing, the
reserve we have built up will run out in the mid to late
2030s.
‘Of course this cannot be allowed to happen and social
security contributions will also have to rise eventually.
However, the changes I am proposing to State Pension Age
will help share the costs of an ageing population between
generations, so that the burden is not borne exclusively by
our children and grandchildren. The actions I am taking will
cut the projected increase in contributions in the period
2016 to 2036 by around a third. This translates into a
saving of some £28 million a year by 2036. Leaving the
pension age unchanged would have increased the financial
pressures on hard working Jersey families and on our young
people in particular.’
The question is; “What can you do about it?” Anyone born before the 1 January 1955 will not be affected by the changes; however that leaves many of us who will be affected, whether it be employed or self employed.
The relatively new Retirement Annuity Trust Schemes (RATS) introduced by the States and under Income Tax law, allows any Jersey resident currently earning to take out such a scheme and to save for their retirement. The major differences being from a traditional pension and a states pension, that you do not have to wait until you are 65 (or 67!) before you can begin drawing your pension. In fact you may start taking a pension from aged 50 and even draw 30% Tax Free Cash from your pension pot.
Therefore, should you not wish to take your RATS from aged 50, but can wait until you are aged 65, you can supplement your income in retirement for the two years until your States Pension kicks in!
RATS pensions are totally flexible, tax efficient and cost efficient to run. You can appoint an independent financial advisor to give you advice and act upon your behalf and you can make contributions either monthly, annually or adhoc to suit your circumstances. Existing UK or local pensions can be transferred in to your new RATS, to start you off, or you can commence with as little as £100.
Even if the States do not get this amendment through this time, you can rest assured that in only a short time, it will have to be introduced, so start doing something positive now and avoid those “low punches”.
Contact us regarding a savings plan for your pension or a RATS, with friendly and impartial advice.
Yvonne Staples
Director