A top pensions expert has revealed the five ways retirees can protect their savings as Labour considers a radical shake-up of pensions in a bid to save money while boosting growth.
It comes after Chancellor Rachel Reeves launched the first phase of a sweeping pensions review in November, aimed at boosting returns for savers and reducing the burden of the annual state pension bill, which is expected to reach £137.5billion in 2024-25.
Labour is exploring whether means-testing pensions could plug the spending black hole while encouraging private savings.
Means-testing would involve assessing an individual’s financial situation to determine their eligibility for support and, often, the level of support they should receive.
Labour can point to the success of the Australian model, which has been instrumental in keeping public pension outlays relatively low compared to other developed countries and has ensured pensions are primarily directed towards those in greater financial need.
However, the comparison is not perfect, as there are important differences between the two systems, and overhauling Britain’s current arrangement is fraught with risk.
To help savers avoid the pitfalls of Reeves’ plan, we spoke to Fiona Peake, personal finance and pensions expert at Ocean Finance.
Here are her top five hacks to fire-proof your pensions.
Diversify your savings
Relying solely on your pension might become riskier if means-testing is introduced or if changes affect payouts, warns Peake.
“If possible, having a mix of savings, ISAs, or even dividend-paying investments could provide extra financial security,” she said.
Cash ISAs, in particular, offer tax-free interest and aren’t counted as pension income, the financial expert notes.
Check if you’ll be affected by means-testing
“If means-testing is brought in for pension top-ups like pension credit, some people could lose out,” the financial expert warns.
She continued: “Those with savings just above the threshold might be particularly at risk”
Her solution? Careful financial planning, such as adjusting how savings are structured — this could help keep you eligible for benefits.
Consider using a drawdown strategy
If you have a private pension, drawing it down in smaller amounts could help keep your taxable income lower and reduce the risk of falling into a means-tested bracket, advises Peake.
“Speaking to a financial adviser about tax-efficient ways to take income is a good idea,” she added.
Review your state pension entitlement
“With potential changes to private pensions, maximising your state pension is key,” Peake said.
What does she advise?
“Check your National Insurance record on the government website to see if you can make voluntary contributions to boost your state pension.”
Stay informed
“Pension rules change all the time, and reforms can take years to come into effect,” warned the financial expert.
You can safeguard against future risk by keeping an eye on government announcements and seeking financial advice when needed will help pensioners make the right moves at the right time, Peak said.