The government recently announced a review into the State Pension Age that could see millions of UK adults working for longer before reaching full retirement.
Currently, the State Pension Age is due to rise to 68 between 2044 and 2046. The review, however, could bring the rise forward by seven years, to between 2037 and 2039. If you were born in the early 1970s, this change could directly affect your plans.
The State Pension is unlikely to be your main source of pension income in retirement but that doesn’t mean it should be ignored. There are benefits to a regular, known, and inflation-proofed income in retirement.
Keep reading for your guide to the State Pension and what the proposed changes in age might mean for you.
The government review won’t conclude until May 2023
The Department for Work and Pensions (DWP) has confirmed that longer life-expectancies and a growing population mean a review is necessary to ensure government costs are “robust, fair and transparent for taxpayers”.
The review will consider:
- The implications of the latest life-expectancy data
- The costs of an ageing population and future state pension expenditure
- Labour market changes and potential increases in people’s ability and opportunities to work beyond State Pension Age
- Options for setting the legislative timetable for State Pension Age that are transparent and fair.
The review won’t be published until May 2023, but it isn’t too early to start thinking about the State Pension you might receive, at what age, and what bearing a change to that date might have on your retirement plans.
Your State Pension entitlement can provide the backbone to your future retirement plans, but only if you make the most of it
The State Pension Age currently stands at 66 but will rise to 67 by 2028. The amount you receive is based on your National Insurance contributions (NICs). You’ll need 35 “qualifying years” of NICs to receive the full new State Pension amount. If you have less than 10 qualifying years, you won’t receive the State Pension at all.
Here’s everything you need to about your entitlement.
How much will I receive?
For the 2021/22 tax year the new State Pension is £179.60 a week, or £9,339.20 a year.
When does it increase and by how much?
The State Pension triple lock has previously ensured that the State Pension keeps pace with the cost of living. It did this by increasing the State Pension each year in line with higher of:
- 5%
- Average earnings growth
- Inflation, as measured by the Consumer Price Index (CPI).
An anomaly created by the coronavirus pandemic – and more specifically the government’s Coronavirus Job Retention (or “furlough”) Scheme – forced the announcement of a freeze to the triple lock last year.
The new State Pension increases by 3.1% for 2022/23, to £185.15 a week or £9,627.80 a year. The 3.1% rise in line with inflation came despite average wage growth rising by closer to 8%.
Current high inflation means that the increase won’t keep pace with the rising cost of living. While the freeze is only for a year, its removal meant reneging on a Conservative Party manifesto promise, and arguably, leaves it vulnerable to future change.
How do I make sure I receive my full entitlement and what are “qualifying years”?
The amount of State Pension you receive depends on the qualifying years you have. Qualifying years include those years in which you were:
- Employed and earning more than £183 a week from a single employer
- Self-employed and paying NICs
- Claiming Child Benefit for a child under 12
- Receiving jobseeker’s allowance or Employment and Support Allowance
- Receiving carer’s allowance.
Remember that you need 35 qualifying years to receive the full amount and you won’t receive any State Pension if you have less than 10 qualifying years.
Use the government’s website to check your National Insurance record and if you have any gaps, speak to us. It might be possible to plug these before you retire.
What about the new Health and Social Care Levy?
The Health and Social Care Levy announced in 2021 means that those workers over State Pension Age will need to pay NICs for the first time.
The effect of this 1.25% contribution will be different for everyone but you’ll need to factor it into your plans and think about how long you expect to work. The State Pension Age rising sooner than expected could you’ll need to rethink your plans.
Why is a long-term plan so important?
At HA&W, we can help you incorporate the State Pension into a flexible and long-term retirement plan that is aligned to your goals, whenever your State Pension Age arrives.
Making the most of your State Pension can provide a solid foundation from which to build the rest of your pension and non-pension income in retirement. We can also help to ensure the plans you forge now are robust enough to weather the storm of any future legislative changes.
Get in touch
If you would like to discuss any aspect of your State Pension entitlement or your wiser retirement plans, contact us now to find out how our Chartered financial planners could help.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
