The government is aiming to bring forward plans to increase the retirement age to 68. Previously, it was expected to take place between 2044 and 2046, but now looks set to happen between 2037 and 2039. This could be the start of a trend towards bringing future increases in the retirement age forward due to the projected increase in people above state pension age of 33% between 2017 and 2042.
As a result, many younger people may now have to wait until they are 70 or above to receive their state pension. Luckily, the government also provides a means of planning for retirement which could help to keep an individual’s retirement age at under 70 – even if the state pension is not paid until after then.
The lifetime ISA has arguably failed to ignite the interest of the UK population. However, it seems to be a worthwhile means of investing for retirement, with it being available to open for anyone over the age of 18 and under the age of 40. Within a lifetime ISA, up to £4,000 can be invested in shares each year, with the government providing a 25% bonus for every £1 that is invested.
Of course, there are restrictions on their use. There is a 25% charge to withdraw money from a lifetime ISA, although this is waived if an individual is over 60 or is buying their first home. As a result, it provides scope to not only retire at 60 should an individual be in a position to do so, it also provides financial flexibility so that a first-time buyer will not lose out should they require the funds invested to make a house purchase.
From the age of 50, it is no longer possible to make contributions into a lifetime ISA. However, any sums paid in before then will continue to attract investment returns. Then, at age 60, an individual can use the funds for whatever purpose they choose. And, since it is an ISA, there will be no income tax to pay on the amount. This is different to a pension, where tax is paid on amounts withdrawn in retirement.
Clearly, investing for the long term may not seem to be a priority for people under the age of 40. However, the lifetime ISA provides a very simple means of building a nest egg for when retirement does eventually occur. Since it provides a generous government bonus and can be used to fund a first-time home purchase, it provides more flexibility than a pension.
Furthermore, since withdrawals are allowed at any time (subject to repayment of the government bonus before the age of 60), it seems to be a highly-appealing opportunity for people who wish to improve their chances of retiring before 70. After all, with a significant increase in the number of retirees expected over the next 25 years, the age at which the state pension is paid could easily move to above 70.
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