Last week, the age at which most people start to receive their State Pension officially hit 66. This was just the latest in a string of significant changes to the State Pension that have been introduced in recent years. It’s not going to be the last.
The new change means that men and women born between 6 October 1954, and 5 April 1960, will start receiving their State Pension on their 66th birthday.
For those born after these dates, there’ll be a phased increase in the pension age to 67. A further hike in the pension age to 68 is also planned.
These changes might be painful for some future retirees. Unfortunately, as the UK population gets older, they seem to be necessary. It’s also likely there’ll be further changes to the pension system in the years ahead.
The best way to protect yourself from these changes is to set up a personal pension. That’s the approach I’m using to make sure I have enough money to retire at a date that suits me, not the government.
State Pension protection
I’m planning to buy a selection of high-quality blue-chip stocks in a Self-Invested Personal Pension (SIPP) to protect myself from further State Pension changes.
SIPPs are a great way to save the future. Any contributions attract tax relief at your marginal tax rate, that’s 20% for basic taxpayers. On top of this, any income or capital gains earned on assets held inside these wrappers are not taxed. This makes them extremely tax-efficient instruments.
They’re also straightforward to open and operate. Most online stockbrokers now offer SIPP products, and they’re managed in the same way as an online stockbroking account. The provider takes care of all the backend work for investors.
According to my figures, it’s relatively straightforward to build a large financial nest egg using a SIPP wrapper. Over the past three decades, a portfolio of blue-chip stocks has produced an average annual return for investors of 8%. At this rate of return, a monthly investment of £300, or £240 before tax relief of 20%, could grow to be worth £450k after 30 years.
This would be enough to provide an annual income of more than £11k in retirement.
Blue-chip diversification
I’m sticking with high-quality blue-chip stocks to provide this return. Companies with strong balance sheets, diversified operations and track records of returning cash to investors with dividends, are on my radar. Some examples include GlaxoSmithKline, AstraZeneca, and Reckitt Benckiser.
By building a diversified portfolio of these companies, I believe it’s possible to generate a sizeable financial nest egg, which will help protect my finances against future State Pension increases.
Anyone can follow this relatively straightforward strategy. Indeed, as I noted above, most online stock brokers now offer SIPP wrappers, which are relatively straightforward to open and manage. Therefore, now could be the perfect time to start saving for the future.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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