Is the Purpose of a Pension Changing?

Written by Karen Bryan

4coinsThe slew of recent changes to pensions in the UK has left me wondering if a pension is changing from being an income in later life into a general savings vehicle. A pension pot now seems to be something which you either pass onto your family upon your death and/or help your kids or grandchildren through further education and/or onto the housing ladder.

Now while these are laudable uses, where does it leave the pensioner with regard to income once they give up work?

The new single tier UK State Pension is due to be introduced in 2016. It will offer the equivalent of around £150 a week, as long as you have paid 35 years of National Insurance Contributions.

Now I doubt if £145 a week will be enough money for a comfortable retirement. Therefore, people of state retirement age will either have to keep working, at least part-time, or have another source of income e.g. from an annuity or income drawdown from their pension pot to supplement their State Pension.

If people have raided their pension pots as the earliest possible age, currently 55, then there may be nothing left by the time they reach state retirement age. With increasing numbers of people living into their late 80s and beyond, it’s unlikely that they will be able to keep working forever.

In my opinion, it’d be a better idea to put money into a tax-free NISA for general savings and keep your pension pot to provide an income during later life.