The retirement plans of millions of people have been made more complicated by the surprise increase in their state pension age.
If you were born between 6 April 1970 and 5 April 1972, the age you can start claiming state pension will be between 67 to 68. Those born after 6th April 1972 will now have a state pension age of 68. This means you may need to wait a year longer to start receiving this guaranteed regular retirement income – and that could have a significant impact on your future.
The government is already in the middle of a timetable to increase state pension age, but this recent announcement has quickened the pace of change. If you’re currently aged between 39 and 47, you’re affected by this development. Everyone born after 6 April 1978 will also have to wait until at least 68 to claim state pension.
Women were already more significantly affected by these changes. Until relatively recently, female state pension age was 60; but it is being brought in line with men. In order to claim state pension, women over 39 years of age will have to wait an extra eight years longer than expected two decades ago (when the changes were first mooted).
The importance of state pension
After years of working and paying National Insurance Contributions, the state pension is a valuable benefit you’re entitled to – and it can make a significant difference to your quality of life in retirement.
At the moment state pension is worth £159.55 a week, or £8,296.60 a year. The government’s triple lock commitment – which is guaranteed until 2020, but is under review – means state pension rises annually by either the rate of inflation (as measured by Consumer Price Index), average earnings or 2.5% – whichever figure is the highest.
This is where losing out on a year’s worth of state pension could be so significant. If you’re aged 39-47, you could miss out on up to £8,296.60 in today’s terms – and this is likely to be a higher amount by the time you reach state pension age.
The value of planning
As important as state pension could prove to be in supporting your retirement, relying on it too heavily could limit your ambitions. This is why it’s so important to focus on how much you are saving yourself towards retirement, and checking if you’re on course to have a sufficient pension pot.
Gareth Smith, Skipton Retirement Solutions Manager
Although recent reports have suggested that the increases in life expectancy are no longer increasing at the same pace as previous reports, it continues to rise, which is one of the reasons why the government is increasing state pension age. In terms of your retirement, it’s really important to have plans in place that can support you for many years – and to have the flexibility to adapt to changing circumstances.
For those who hold public sector defined benefit schemes this increase is a double blow. With the age you can access these pensions penalty free now often linked to the state pension age, members will not only have to make up a shortfall in the loss of income from the state pension but also consider whether to accept a reduced income for the rest of their life or to delay the income payments from their Defined Benefit scheme.
Financial advice available
At Skipton we offer personalised financial advice on preparing for retirement. We can help you establish what you want to do, and the financial provisions you’ll need to make it happen. We’ll carefully review how your current plans measure up towards achieving your ambitions, or if you need to think about making changes.
Gareth continued, “If your retirement plans are heavily reliant on the state pension to provide your retirement income your plans will be more susceptible to change. This was the first formal independent review of the state pension however legislation dictates that these reviews will now be undertaken every six years. There is the potential that further increases to the state pension ages could be made.
“If you leave it too late to prepare, you run the risk of having to downgrade your expectations or working for longer – regardless of the state pension age changes. We’ll help you picture the type of lifestyle you’re on course to achieve, and provide tailored recommendations for you to consider. There’s no pressure to act.”
Our investment recommendations are likely to include stock market-linked investments. These aren’t like building society savings accounts, as your capital is at risk and you may get back less than you invest. The value of your investments and any income from them may fall as well as rise.