Don't panic

By HELEN LOVELESS, MAIL ON SUNDAY ENTERPRISE EDITOR
Updated:

 

ANYONE reading recent headlines could be forgiven for thinking they will probably have both feet in the grave before they have a chance to draw the State pension.

The news that Adair Turner, chairman of the Pensions Commission, has urged the Government to raise the national compulsory retirement age to 70, or to scrap it altogether was greeted with cries of horror amid claims many of us will die before we can give up work.

But this week Turner told This Is Money: 'This has nothing to do with the age at which people can claim their pension. The issue is simply whether we should allow employers to discriminate on grounds of age when it comes to retirement.'

So what is going on and how will your pension plans be affected?

The Pensions Commission (tel: 020 7962 8641) is reviewing the private pension system and long-term savings to assess its effectiveness and make recommendations for change to the Government.

Regardless of the commission's suggestions, the compulsory retirement age of 65 will be abolished from November 2006, under the terms of an EU directive outlawing discrimination in the workplace. In other words, it will be illegal for an employer to make you stop work simply because you have reached 65.

Turner says: 'Currently, employers can set their own retirement age - they have an absolute right to do this under law. However, removing this right or setting a higher compulsory age of 70 would give older people added protection in the workplace.'

This does not mean we will all have to work beyond 65. But some commentators worry that company pension schemes may change so they reach their peak later, therefore paying out less to someone who chooses to retire before, say, age 70.

There is a big difference between the age at which you can retire and the age at which you can legally draw your pension. In fact, you can retire - simply stop working - at any age. The question for most people is whether they can afford to.

Unless you are well-off, or plan to work part-time after retiring, then the chances are you will need your pension. So when can you claim?

The minimum age you can take an income from a private or company pension scheme is 50. This will rise to age 55 in 2010.

Payment of the State pension comes later. At present, women can draw the State pension at age 60 and men at 65. Long-term changes are gradually bringing the pension ages of both sexes together. The effect of this is that women born before 6 April 1950 will be able to draw their pension at age 60, but women born five years later will have to wait until age 65.

The Department for Work and Pensions says there are no other plans to change the age at which people can take their State pension.

Those who choose to work beyond 65 could also enjoy a higher income in retirement says Turner: ''It would be a good thing because it would allow people to continue to boost their pension fund, and get a better annuity because they would be buying it later in life.'

And, of course, it would benefit the Treasury by increasing the amount of tax they can expect to receive.

If you are planning to retire early you can contact the Department for Work and Pensions on 0845 3000 168 for a forecast of what your State pension will be at pension age, or log on to www.thepensionservice.gov.uk.

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