The Cambridge University biogerontolgist Aubrey de Grey who is working towards being able to tackle the ageing process believes that the first person who will live to be 1,000 has already been born.

I do not know if he is right or not, but I do know that life expectancy is rising by about 2 years for every 10 that go by. This has had, and will continue to have, a profound effect on both state and private pensions.

The problem is two fold, as people live longer they need an increased pension pot to pay for the extra years in retirement. On top of this, increased life expectancy causes annuity rates to decrease, as insurance companies need to pay out the income for a longer period of time.

When the time comes to take an income from their pension, most people choose to use the pot of money they have built up to purchase a guaranteed income for at least the remainder of their life from an insurance company. This taxable income is called an annuity. The annuity rates determine what level of income you will receive from your pension pot. The lower the annuity rate the less income your pension will buy.

Level annuity rates have halved in the last 20 years as a result of declining interest rates and an ever increasing life expectancy. This means that not only will you need to save enough to provide for, say, 20 years in retirement as opposed to say 15, it is also widely accepted that in the future you will get less income from the money you do save.

So what can you do about it?

You could always ignore the situation and hope that your retirement income will sort itself out, although this seems particularly ill advised to me. When you get to retirement you don’t want to have to worry about your income and it is unlikely that your occupational pension, if you have one, together with the state pension will be enough to sustain your current standard of living.

The other option is to start saving for your retirement as soon as possible. The sooner you start to save the bigger the pension pot you will have in retirement. A 25 year old who starts saving £300 per month could have a pension fund of over £1 million. If he or she puts off saving for ten years the fund value could be less than half this amount, a twenty year delay could see more than an 80% reduction. The reason for such a dramatic drop in value over time is simple; the money you invest at the early stages of your pension has the longest to grow.

All this highlights just how important it is to build up a decent personal pension as soon as you can afford to start saving. If you consider that as a result of increased life expectancy you might spend two thirds of the time you spend working in retirement, it is clear to see just how important your pension savings are. You will be drawing on this investment for a long time. Don’t neglect it.

This said, if you are looking for a low cost pension where you are in control and you’re happy to make your own investment decisions we think the Vantage SIPP (Self Invested Person Pension) is a great choice.

Within the Vantage SIPP you have the freedom to choose from over 2,300 funds, shares, exchange traded funds, Gilts, corporate bonds or cash. You can pick and switch between those investments you think show the greatest potential and the low costs help you keep more of your money invested, helping your fund grow.

You can manage your SIPP online, by post or over the telephone, whatever suits you best. What’s more, if you have a question you can call our pensions helpdesk on 0117 980 9940. They are here to answer all your retirement questions and to provide you with all the information you need to control your SIPP yourself.

It is quick and easy to open a SIPP, you can do it online in a few minutes. Open a SIPP today and start saving for your retirement for as little as £40 a month.

Don’t wait until it is too late to save for your retirement. Act now and make sure that, no matter how long you live, you can rest safe in the knowledge that your retirement is taken care of.

Laith Khalaf
Pensions Analyst

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