You may have noticed retirement ages in Scotland are creeping up.
They’re currently expected to reach 67 by 2026-28 and 68 between 2044 and 2046.
That’s because people are living longer these days – which also means many of us will need more funds to see us through retirement.
This makes it more important than ever to stay on top of our retirement savings, the majority of which often sit in a number of different workplace pension schemes throughout our career.
Which kind of pension saver are you?
When it comes to keep tracking of pension pots like these, people typically fall into two categories.
There are some of us who will have a detailed record of all our pensions, with everything neatly organised.
And then there are those who may struggle to keep tabs of all the paperwork and remember the details of the multiple pension pots built up over our working lives.
If you find yourself in the latter category, you’re certainly not alone.
Planning for retirement can be daunting, especially when you’re making decisions for a future that’s decades away.
You may have several pension pots from different employers and even if you have all the information, knowing what to do next can still be confusing.
A potential solution to these issues, currently proposed by the UK Government, is the “pension pot for life”.
Introduction of ‘pension pot for life’ would shift retirement savings responsibility to employees
This major change to the UK pension system would allow people to have a single workplace pension pot they continue to contribute to as and when they change jobs.
Currently, many employers choose a workplace pension scheme for their employees, who are automatically enrolled if they meet certain criteria.
The “pension pot for life” would shift this responsibility to employees, allowing them to choose a pension scheme for themselves.
With a “pension pot for life, employees would carry their scheme with them when they change jobs, building up one comprehensive retirement kitty over their career.
This avoids the issue of having multiple small pension pots from various employers, which can be hard to manage and may not grow significantly over time.
While the concept of a “pension pot for life” sounds beneficial, it could introduce new complexities and place more responsibility on savers.
Greater flexibility comes with risk
It offers greater flexibility in choosing a pension scheme.
But there is a risk of ending up worse off if a poor choice is made – and pensions are notoriously complex.
Currently, some employers actually boost the value of pensions by taking on this responsibility and carefully choosing and reviewing schemes for their employees under the auto-enrolment rules.
Biggest change to pensions since auto-enrolment
Despite these challenges, if this new proposal becomes a reality, it will be the most significant pension reform since the introduction of auto-enrolment. That change has led to 20.4 million employees joining defined contribution workplace pension schemes.
Hopefully, the “pension pot for life” will bring similarly positive results.
Russell Anderson is a financial planner at Aberdeen-based Aberdein Considine Wealth.
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