State pension age to rise to 66 from next week
RETIREES will have to wait until they're 66 to claim their state pension after the minimum age is hiked from next week.
Between 650,000 and 700,000 workers turn of state pension age every year, according to pensions expert Steve Webb, meaning hundreds of thousands of Brits will have to work and extra year before they can claim it.
The changes will apply to anyone born after October 5 1954, who will have to wait until they're at least 66 before they can access their state-paid retirement fund.
The rise was announced in 2010 by then Chancellor George Osborne and will come into effect from October 6 2020.
It's the first rise that will affect men as well as women, and will go up from the current state pension age of 65.
For some women, this will be six years after they were originally told that they would be able to claim their retirement fund.
The state pension age is expected to be increased again to 67 in 2028 and to 68 from 2044, although there are plans to bring this forward to 2037.
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension - The Government has made it so it's compulsory for employers to automatically enrol you in your workplace pension, unless you choose to opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions rose to 8% in April 2019, with employees now paying in 5% and employers contributing 3%. This is up from the 5% of contributions workers and companies were required to pay in previously, where employees contributed 3% and employers 2%.
- Final salary pension - This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year on retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
- New state pension - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £175.20 a week and you'll need 35 years of national insurance contributions to get this. You also need at least ten years' worth of national insurance contributions to qualify.
- Basic state pension - If you reached the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £134.25 per week and you'll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up national insurance contributions under both the basic and new state pensions will get a combination of both schemes.
The government hopes that making workers wait longer until they can claim the payout is to make it more affordable as we live longer.
Mr Webb, partner at LCP, said: "The pension increases which have already been announced are only the start.
"It is widely expected that we will reach a pension age of 68 before the currently planned date of 2046, and many younger workers could see pension ages of 69 or even 70."
At the moment, the state pension is worth £175.20 a week, or £134.25 a week for those who retired before April 2016.
Many retirees rely on the benefit as their many source of income, with latest figures from the Department for Work and Pensions (DWP) suggesting that it makes up 43% of the average weekly pensioner income.
Typically, this is topped up by a private pension, workplace pension or extra earnings if a retiree continues to work.
For most people, relying on the state pension alone won’t provide the lifestyle they want in retirement, said Steve Cameron, pensions director at Aegon.
How to work out your state pension age
THE government has changed the state pension age to make it more affordable now that we typically live longer.
It's complicated, especially if your pension age birthday falls in a year when it is being raised.
You may find that you have to wait a few months after you come of age before being allowed to claim your state pension, depending on when you were born.
There are a number of free online calculators that will tell you how old you will need to be before you are eligible for the payout, such as , and the .
Some of them will also let you know how much cash you'll be entitled to claim as it depends on your national insurance record.
You can also compare your birth date to the state pension age timetable.
Remember though, laws and policy may change between now and your state pension age which could affect when you can claim it.
He added that it's "vital to plan ahead" by making extra savings through a private or workplace pension for example.
Mr Cameron said: "The sooner people start on that journey the longer their contributions have to grow with investment returns.
"Private provision also offers more flexibility and could allow for a more gradual transition to retirement rather than having to keep working till a state pension age which could rise to 68 in the future."
The last rise was in November 2018, when the age for women to claim the state pension was brought in line with men and was increased from 60 to 65.
Some retirees will have to wait until they're older until they can claim the state pension because it's calculated based on your national insurance record.
To get the full state pension amount you must have at least 35 years' of national insurance contributions, and you need to have at least 10 years' worth of national insurance contributions to get anything at all.
You can use a to find out how many years of contributions you have and how much state pension you're likely to get.
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The state pension is usually paid every four weeks in arrears into an account of your choice.
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Millions of pensioners have been left in "total confusion" thanks to a "contracting out" scheme which means they no longer qualify for a full state pension.
You can read our guide on how to claim your workplace pension.
Top tips to boost your pension pot
DON'T know where to start? Here are some tips from financial provider Aviva on how to get going.
- Understand where you start: Before you consider your plans for tomorrow, you'll need to understand where you stand today. Look into your current pension savings and research when you’ll be eligible for the state pension, and how much support you’ll receive.
- Take advantage of your workplace pension: All employers are legally required to provide a workplace pension. If you save, your employer will usually have to contribute too.
- Track down your pensions: If you've moved jobs a lot, this means you'll have several pension pots. It can be hard to keep track of them all, but the government offers to help you.
- Take advantage of online planning tools: Financial providers and have tools that give you an idea of what your retirement income will be based on how much you're saving.
- Find out if your workplace offers advice: Many employers offer sessions with financial advisers to help you plan for your future retirement.