The planned rise in the State Pension age is likely to be a concern for a wide range of people. It’s expected to increase to 68 over the next two decades. However, it wouldn’t be a major surprise if further increases are ahead, since it’s likely to become increasingly costly for taxpayers as life expectancy increases and the number of people of pensionable age does likewise.
As such, it may be a good idea for individuals to put in place their own arrangements in order to retire at a relatively young age. With a variety of opportunities available in this area for people of all ages, there’s likely to be an option to suit a variety of personal circumstances.
SIPP
A SIPP is a tax-efficient means of planning for retirement. Contributions are made before income tax is paid, which means that the size of an investor’s portfolio could rise at a faster pace than it otherwise would. Furthermore, withdrawals can be made after the age of 55, with the first 25% not subjected to income tax.
While invested, capital within a SIPP isn’t subject to capital gains or dividend tax. This can provide a significant boost in later years, when the size of an investor’s portfolio will (hopefully) have become relatively large.
With a SIPP being managed online, it’s a relatively easy product to access. Although there are fees to pay each year for its administration, in the long run they’re likely to be more than offset by the tax savings made.
Stocks and Shares ISA
For individuals who wish to take a potentially simpler approach from a tax perspective, a Stocks and Shares ISA could be a good idea. Contributions are made after income tax has been paid, which means this type of ISA may grow at a slower pace than a SIPP. Amounts invested within it, though, aren’t subject to income tax or dividend tax.
The main benefit of an ISA is that withdrawals are tax free. This may make it easier for an individual to budget in retirement. And the fact that withdrawals can be made at any age provides greater flexibility than a SIPP. With the annual ISA limit now standing at £20,000, it’s also likely to be generous enough for the vast majority of individuals to build a significant portfolio during their working lives.
State Pension
With the State Pension age expected to rise over the long run, now may be the right time to consider investing through a SIPP or a Stocks and Shares ISA. Both products can be opened online, and the use of aggregated orders can keep commission costs to a minimum for smaller investors. Even investing a modest amount each month can make a real difference by retirement age, and can mean an individual is less reliant on the State Pension in older age.
