Cash clinic: If you aim to beat the raising of the state pension age…

Q: I am a 59-year-old grandfather who had always planned to retire at 65 to spend more time with my family.

I am therefore very concerned about government plans to increase the state pension age to 66 by 2016. How can I boost my pension at this late stage to ensure I can still afford to retire at 65? .

EB, West Lothian

A: I would firstly say that although legislation to increase the state pension age to age 66 for men has not yet been agreed, the plans are likely to be passed and you are right to plan ahead.

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Many people will be faced with the same dilemma. I appreciate that your aim has always been to retire at 65, however, economic conditions have changed and you should seriously consider whether you can now afford to do so. Much depends on how you have saved for your retirement until now.

If you have made no private or company pension provision, it is arguably too late to start now as the funds you could save would have little time to grow before you would need to draw on them, and the pension they could provide in six years time would be trivial.

If you already have a pension, it may be worth increasing your contributions. There is probably only merit in this if you are a higher rate taxpayer but will be a basic rate taxpayer when you retire. This would mean you receive tax relief at 40 or 50 per cent on your contributions but will be taxed at just 20 per cent on your pension.

If you are going to be mostly reliant on state pension benefits, you effectively need to fund for the year's income you will miss when you retire at 65.

I would normally suggest that people who need to save firstly consider individual savings accounts (Isas) if they have not already done so. Isas offer tax-efficient growth on investments and funds can be drawn either as a tax-free cash lump sums or as tax-free income. You can save up to 10,200 this tax year, and most providers will accept monthly contributions.

Up to half of the Isa allowance can be invested in a cash Isa, which is comparable to a tax-free bank account. The balance, or the whole allowance, can be placed in an investment Isa. This type of Isa offers investment in a wide range of pooled investment funds or stocks and shares which can be tailored to suit investors of all types, from the risk-averse income-seeker through to the aggressive specialist investor.

If your Isa allowance has been fully used, you could consider a regular savings plan as offered by many insurance companies and fund management companies.These normally offer a similar choice of investments to an Isa, though investment gains would be subject to capital gains tax if they exceeded the annual CGT exemption (10,100 in 2010 -11).

• Stephen Hall is a wealth manager within the private client and financial services department of HBJ Gateley Wareing

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The above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd and HBJ Gateley Wareing accept no liability on the basis of this article.

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