Amid the pensions gloom, three pieces of good news.
One way or another, there hasn't been a lot of good news on the retirement front in recent years.
Lower investment returns, tighter contribution limits, a higher retirement age, the scrapping of employers' generous 'defined benefit' pension schemes -- the list is long, and troubling.
The result has been something of a sea change in people's expectations. A few years back, a lot of people were hoping to retire early, with every expectation of enjoying a reasonable standard of living in retirement.
Now, they're thinking that they'll be lucky if they get to retire at 65 -- and are reconciling themselves to years of relative penury.
Silver linings
Yet all that gloomy news overlooks three very positive developments that have taken place. Developments that in fact serve to make it easier for a person of even modest means to still plan for early retirement.
Better still, they don't require any 'new money'. Articles about early retirement are usually investment-led: put aside just £5 per day and build your pension pot faster -- you know the sort of thing.
And that's true. A basic rate tax payer saving an extra £5 per day will be able to set aside £150 per month, worth £187.50 after tax relief. Assuming a 7% return, over 20 years that will accumulate to an extra pension pot of £98,243. You can certainly retire earlier on that.
Yet as I'm about to explain, you don't need to contribute any more money at all in order to be able to retire earlier -- just be willing, and able, to organise your existing pension planning arrangements differently.
Let's take a look.
SIPPs
The last few years have seen a big rise in the number of people making use of Self-Invested Personal Pensions (SIPPs). Yet, as is often the case, many people still either don't know about SIPPs, or haven't been bothered to do anything to take advantage of them.
Which is a mistake. Because instead of the low-performing, high-cost 'with profits' funds in which many investors still have their pension pots invested, SIPPs allow considerable freedom as to where pension savers can put their money.
Index trackers, ETFS, investment funds, shares -- even cash. You take the decisions, and make the choices. 25% BRIC emerging markets, 25% US S&P 500, 25% natural resource funds and 25% UK blue chip companies? Or 100% UK blue chips? Whatever: if that's what floats your boat, with a SIPP there's nothing to stop you.
And the good news? There are more SIPPs than ever on the market, including providers offering ultra-low cost SIPPs. Invest in any of 2,300 funds that pay a trailing commission, and at least one SIPP provider won't charge you a penny. Others rebate some or all of the trailing commission in exchange for a modest annual sum.
Low-cost trackers
What to put in your SIPP? (Or, for that matter, ISA?) Here on The Fool, we're big fans of low-cost index trackers, and -- more recently -- low-cost ETFs. The reasons aren't difficult to see.
Index trackers offer diversification, and low charges mean that more of the returns go in to your pocket, and not the provider's.
Today, there are index trackers on the market still charging investors 1-1.25% or even more for a bog-standard tracker fund -- while other providers charge 0.27% or even 0.15% for exactly the same product. That's quite a difference.
And over the years, that difference in costs adds up, as figures from low-cost tracker provider Vanguard illustrate.
Take a new graduate aged 21, who might reasonably expect a state retirement age of 70. Saving £1,200 per year, increasing at 3% each year, he or she would be able to start drawing a pension of £30,000 from age 70, if their contributions were invested in an average UK fund growing at 6% a year and charging a TER of 1.66%.
However, by using low cost investments, this saver could see a dramatic difference in his options. For example, using Vanguard's average TER for its UK equity index funds of 0.27%, the same graduate could draw the same £30,000 pension from age 65 -- that's five years earlier.
And a pure tracker charging just 0.15% would enable them to retire even earlier still.
The good news? The number of providers offering ultra-low cost trackers and ETFs is increasing. As I've written before, in the last year or so, for instance, both Vanguard and HSBC (LSE: HSBA) have entered the UK market with just such low-cost offerings.
An end to compulsory annuitisation
As I wrote less than a month ago, the government has fulfilled a campaign promise and announced a consultation process intended to bring an end to the system whereby pension savers have to buy annuities when they retire.
Instead, subject to a limit on how fast they can deplete their pension pot, savers will be able to draw it down at will. They'll also be able to pass the unused part of their pension wealth to their heirs, when they die -- subject, again, to a tax intended to deter people from using pensions as a form of tax-free inheritance provision.
The rules aren't yet in place, of course. But the process of consultation ends shortly, and my guess is that by Christmas we'll all know the shape of the new pension regime.
But the ending of compulsory annuitisation is undoubted good news, and gives people the ability to be far more flexible in terms of when and how they take their retirement income.
My own guess is that we'll see many more people take a phased approach to retirement, working part-time and drawing down a little of their pots, while leaving the bulk of their pension savings to carry on growing and generating future income. But they'll also be able to retire earlier if they want to.
Make the move
So there we have it: three pieces of good news, that spell 'early retirement' whether taken individually or collectively.
That said, you have to take the first steps, or you'll still be locked into your existing retirement date. So look at a SIPP, think about switching to lower-cost investments, and keep an eye on those forthcoming changes to the annuity rules and regulations. And all without investing any 'new money'.
But of course, invest that extra £5 per day, and you'll be retiring even earlier.
> Malcolm has a portion of his retirement funds invested in low-cost trackers from Vanguard and HSBC.
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