Should you worry about paying more money into your pension?
I realize this sounds controversial and the opposite of our usual encouragement to increase pension savings, but bear with me.
While our politicians indulge in some more useless arguments to score points on the state pension, it’s worth thinking about how that, our work and personal pensions, and other savings or investments fit together.
Because if the criteria for when you can access your pension are changed, this could have a more substantial effect than the state pension on how we aim to enjoy our retirement.
Changing the target: You can currently receive a pension at age 55, but it will increase to age 57 and could continue to increase with the state pension age.
I am 45 years old, so currently my state pension age is officially set at 68 years old.
The ideal would be to retire before that date, or at least have the option to do so. My father died a decade ago, aged just 66, a couple of years after retiring. That focused my mind on hopefully being able to stop working before my official retirement age.
My plan has always been for my work pension savings to do the heavy lifting. I have two small Sipp pots, but the majority of my retirement investments are in my defined contribution workplace scheme.
Saving into your workplace pension is a smart move – it gives you tax relief and contributions from your employer, and the sooner you do it, the richer you will eventually be. Read our guide to how pensions work.
But while savers can currently access their workplace or personal pension from age 55, I will probably have to wait until age 58.
This is thanks to rules that restrict when you can access your pension by linking it to a decade before state pension age.
The risk for people like me, aged around 40 or younger, is that we are far enough away from the state pension age that we will end up with double jeopardy for pensions, if a future government decides to increase it to balance the books.
I’d like to think that the threat of a big backlash would mean politicians wouldn’t suddenly change both the state pension age and when we can access our pension savings, but it could happen.
The knock-on effect of a large increase would be to dramatically reduce people’s options when it comes to retiring early or stopping working full-time.
Neither of the main political parties appears willing to discuss or plan for the state pension funding problems facing the UK, which only serves to increase the risk.
For example, the triple lock has improved the state pension for those receiving it now, but has increased the possibility that those of us who work and pay those pensions will have to work longer.
In the extreme, that brings me to a question I am often asked by people in their 20s, 30s and 40s: will we even get a state pension?
My response is usually that I don’t see the state pension being scrapped for everyone, as this would represent a fundamental breach of Britain’s economic contract. But it’s not impossible.
One measure of interest here is that our recent Steve Webb column on whether the state pension could ever be means-tested was This is Money’s third most-read article last month, with more than 500,000 views.
A good financial mantra is to not think about relying solely on the state pension.
The answer is usually to start paying into an occupational pension (or a Sipp if you are self-employed) as soon as possible and make the most of the tax relief benefits on offer.
Certainly, I would always suggest that it is wise to maximize the contributions you can receive from your employer, paying as much as necessary to obtain them.
Beyond that, I think the reason for paying more into your pension is not always clear.
I direct most of my additional investments into my stocks and shares Isa. This is what I hope to rely on to supplement my income if I can return to work when I reach age 50.
The problem is that an Isa requires more discipline because you can take advantage of it at any time.
I always say that the big disadvantage of a pension is that you can’t get the money, and the big advantage of a pension is that you can’t get the money.
It would substantially improve the nation’s financial planning and confidence if we could achieve an equally long-term compromise on what pension rules we will face.
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