A golden retirement on your own terms

There are lots of ways to raise money for your retirement if you don't have a private pension.

Lord Turner's Pension Commission finally delivered its vision for state and private pension reform on Wednesday. But for those who are already nearing retirement, most of the suggested changes will come too late. In any case, the Government is under no obligation to accept Lord Turner's recommendations: it may simply cherry-pick the least expensive and controversial measures.

However, all is not lost for those without private pension savings, even those nearing retirement. If you are a homeowner, or have a small amount of savings, there are ways to increase the income you will have to live on during retirement.


If you're over the age of 55, there are two ways to release equity from your home. Both lifetime mortgages and home reversion plans enable you to access some of the value of your property without selling it.

Lifetime mortgages typically allow you to release up to 50 per cent of the value of your property (the older you are, the more you will be able to unlock). You make no repayments on the mortgage, but the interest on the loan rolls up and is added to the debt, which is repayable from the sale of the property when you die.

Lifetime mortgages guarantee that the total repayment cannot be greater than the value of the house, but there are no guarantees about the size of the inheritance you will be able to leave to heirs.

Home reversion plans allow you to sell part or all of your property to a scheme provider. The provider then reclaims its stake by selling your property when you die. This option gives greater certainty as to what you will be left with to pass on as inheritance. However, if the housing market soars after you've taken out the plan, you will lose out on any increase in value in the proportion of your property that you've sold.

Brendan Kearns, product development manager for equity release at Norwich Union, says that many elderly people have been turning to equity-release plans in recent years to supplement their retirement income.

"Around 60 per cent of retired people's assets are now in property, so everybody should at least consider equity release, although there are people for whom it won't be appropriate," he says. "Customers tend to come to us when they are already retired and start to see their savings depleted."

However, Kearns emphasises that it's worth considering whether it may be easier, and less costly, to trade down to a smaller property before committing to an equity-release plan. This is an easy way of releasing equity from your home, but not always the most practical.


Neil Churchill of Age Concern says that if you're in your fifties or early sixties, it may be worth considering deferring your retirement. Even if you haven't yet got a private pension, it may still be worth taking one out, especially if your employer is willing to contribute.

If you're willing to work beyond the state retirement age - currently 60 for women and 65 for men - you can defer taking your state pension for up to five years and receive a lump sum at the end of the period as compensation.


Tom McPhail, head of pensions research at Hargreaves Lansdown, says that new regulations coming into force on 6 April 2006 (so-called "A-day", when the Government will be bringing in a new, simplified set of tax rules for pensions) will allow people to transfer as much money as they can muster into a pension in their last year before retirement (up to £1.5m). This means that if you have some savings that are not in a pension, you can transfer them to a private pension, receive tax relief on the way in and then take 25 per cent of your fund back tax-free immediately. If you have less than £15,000 in your pension, you can take the whole pot as cash.

Another option, which will become available after A- day, is to let your children buy your house within their self-invested personal pension (Sipp). You would have to pay rent on your own property, but your children may feel that they can help you out with this. "I certainly think it is an option that some families will consider," says McPhail.


Churchill adds that it is also worth taking straightforward steps such as reviewing your finances to check that you're not paying for any insurance or other financial policies that you no longer need.

Finally, make sure that you are receiving the full state benefits that you are entitled to. Benefits such as pension credit ensure that no pensioner in the UK is on any less than £109 a week. If you're not receiving at least this, you should call your local pensions office. Also find out whether you are owed other entitlements such as council tax benefit.

Independent Partners: 10 top tips for retirement. Get your free guide here

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