Your Pension Might Not Be As Much As You Think

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Workers approaching retirement are facing an uncertain financial future as they plan to raid their pensions to release cash to ease their struggle with debt.

Changes to the state pension in the UK and flexible access pension rules could combine to leave many pensioners broke on retirement.

Millions of state pensioners will not receive the full expected £155 a week pay out from April 2016 due to a change in qualifying rules.

Instead of accruing 30 qualifying years to receive the full pension payment, the limit has been raised to 35 years and many workers do not have the time to build those years without working into their retirement.

HSBC warns this will leave many pensioners short of money the expected to cushion their finances.

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Crippled finances

Add to this the new flexible access pension rules that start from April 2015, and the problem could worsen.

The rules let anyone aged over 55 with a direct contribution pension drawdown their fund as and when they wish.

The worry, says HSBC, is too many people approaching retirement have too little saved and have borrowed too much to maintain a lifestyle above their earning capacity.

As a result, they may raid their pensions to pay off mortgages, personal loans and credit cards.

Research by the bank has revealed saving has suffered during the downtown, with an average one in four workers stopping their pension contributions to make ends meet.

Miserable retirement

A similar number of people approaching retirement also have debt problems and significant financial difficulties that do not allow them to save enough to fund a comfortable retirement.

The study also revealed:

  • 23% of workers expect their standard of living to fall when they retire
  • 66% do not believe they have enough retirement savings to fund day-to-day bills
  • 69% fear they will outlive their savings and end their lives in poverty
  • 10% feel they will never have enough savings to retire

Charlie Nunn, group head of wealth management, HSBC, said:  “No one can predict the future for the global economy, but few seem to realise the true impact of the downturn on retirement savings and the ability for governments to fund pensions.

“Many people have only just weathered severe financial problems and do not have enough time left to allow their finances to recover.

“Our research suggests it may take decades for many people to deal with their debt problems because they do not have as much pension money coming as they planned.”

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