There are no guarantees any of us will make it to state pension age in robust health, and in nine out of 10 areas of the UK, the average person doesn’t. It raises the question of what you’d do if you needed to fill the gap.
The problem is likely to get worse. Healthy life expectancy has fallen by two years in a decade, so if the trend continues, more people will face a shortfall. At the same time, the state pension is rising. There are already plans in place to increase the state pension age to 67 by 2028 and 68 by 2046, but there’s every chance the path to 68 will be accelerated at some stage.
When you’re planning an income after finishing work, there’s every chance you’re factoring the state pension into the figures. It means it’s important to consider how you would cover any period before it was due.
Why you may need to think again on pension contributions
The fact that you can draw a private pension income from 55 (rising to 57) means for many people, the answer lies in revisiting pension contributions, aiming to build a pot that’s big enough for you to take a higher income in the earlier years. The earlier you start planning for this, the longer you have to fill any potential holes in your plans.
You may also want to look into income protection insurance, which can pay out a specific sum if you have to stop work for health reasons. Think carefully about how long you would need it to pay out, when it would need to kick in, and how much income you need to cover. You also need to consider whether you want to be covered if you can’t continue in your current job, or whether you’d want it only to pay if you couldn’t work at all. Income protection insurance isn’t cheap, but it can be incredibly valuable.
It’s never too late to act
If you’re closer to retirement, it’s never too late to make a difference, so it’s worth looking at what you can afford to put into your pension. It’s also a good idea to have a Plan B just in case: whether you need to consider downsizing or using other assets to produce an income until you reach state pension age. It might also mean building a bigger emergency savings safety net to cover any additional costs.
Sarah Coles: Head of Personal Finance
Sarah Coles is AJ Bell’s Head of Personal Finance. She’s passionate about helping people get to grips with their money, so they have more freedom to do the things that really matter to them in...
