Reference no: EM133454376
Case Study: Malcolm is 45 years old and has never saved into a pension previously. He has started a new job. His gross earnings are £23,500 per year and he is automatically enrolled into his employer's defined contribution pension scheme. Malcolm contributes 5% of his earnings and this is topped up by 4% by employer contributions and tax relief. At retirement, he also expects to get a state pension worth £9,400 (before tax) in today's money.
Questions:
1.1 Using the 'Pension calculator', work out how much disposable income Malcolm will have in the first year of retirement if he retires at age 68 and uses the whole of his pension fund build up under the defined contribution scheme to buy an annuity (which, in the calculator, is an index-linked annuity). Assume that there has been no increase in Malcolm's real income or pensions savings strategy over this time period.
1.2 Using the 'Pension calculator':
a .Work out the sum of Malcolm's disposable income and drawdown 'income' in the first year of retirement if he retires at age 68 and uses the whole of his pension fund for drawdown, choosing to draw out a fixed income equal to 33% of hisgross pre-retirement income.b .Comment on the sustainability of Malcolm's drawdown strategy.
1.3 Describe one advantage and one disadvantage for Malcolm in choosing an index-linked annuity rather than drawdown.
1.4 Discuss one advantage and one disadvantage for individuals if a government decides to increase the state pension age in a country.