Why you need to plan for the rise in the State Pension age
And why deferring it be to your advantage

 23 October 2020
Why you need to plan for the rise in the State Pension age

The State Pension age has risen this month, so you now need to be aged 66 to claim your State Pension. This means that those born between 6 October 1954, and 5 April 1960 can receive their pension from their 66th birthday onwards.

It’s actually the first stage of moving the State Pension age to 68 over the next two decades, so it’s not a particularly rapid change. However, the change in the State Pension age does need to be considered in your retirement financial plans, and when deciding your ideal retirement date .

Pensions and pledges

Whilst the current Chancellor and government have pledged to keep the triple lock, which ensure the State Pension rises by a minimum of 2.5% each year, there’s no guarantee the next government will do the same. So it’s important to be realistic about what your State Pension will actually be worth when you retire. At time of writing a full State Pension is £175.20 a week, if you meet certain criteria such as having 35 qualifying years of national insurance payments.

Not sure what to do with your pensions? Call us for an initial consultation to talk through your retirement goals, and your current financial plan (if any!). Together, we can work out what’s important for you, your family and your legacy, and the role your various pensions can play in making these goals reality. 

Your State Pension and private pensions

The rise in State Pension age won’t affect when you can claim your private pension. You can usually start drawing from a private pension from the age of 55. 

The government has confirmed plans to increase the minimum pension age from 55 to 57 from 2028, alongside planned increases in the State Pension age to 67. From then on, the minimum pension age will remain ten years below State Pension age.

  • At this point, you can take 25% of your pension built up so far as a tax-free lump sum. 
  • After that, you can start taking the remaining 75%, as income and this may be liable for tax. 

Options for accessing the remainder of your pension pot include:

  • Taking it in cash
  • Purchasing a guaranteed income product (an annuity)
  • Investing it to generate a regular income 
  • Transferring it to a new pension provider who might offer a better deal 

There may be charges involved if you withdraw cash from your private pension, and if you withdraw large amounts, these could be liable for a higher rate of tax.

Will you depend on your State Pension?

In our experience, people with all levels of pensions and savings generally fall into three categories:

  • Those who don’t have sufficient funds for their retirement
  • Those who have enough (and probably don’t realise it)
  • Those who have more than enough

What you choose to do with your pensions very much depends on which category you are in. We find that a remarkable number of clients who have saved hard all their lives and who have a sizeable private pension won’t have to rely on their State Pension as their parents or grandparents did. Yes, it is very much part of their financial planning and calculations, but it’s not an absolute ‘eat or not eat this week’ necessity. 

Deferring our state pension

There are some advantages to not taking you State Pension as soon as you are eligible, known as deferring. If you reach State Pension age after 6 April 2016, your State Pension will increase a little for every week you defer taking it. You must defer for at least 9 weeks to qualify. As the government pension website explains:

“Your State Pension increases by the equivalent of 1% for every 9 weeks you defer. This works out as just under 5.8% for every 52 weeks. The extra amount is paid with your regular State Pension payment.”

Example:

  • You get £175.20 a week (the full new State Pension).
  • By deferring for 52 weeks, you’ll get an extra £10.16 a week (just under 5.8% of £175.20).”

Given the current low rates of interest, this could be a simple way to get a competitive return on your savings in retirement.

Young workers and the state pension

Younger workers may think all this State Pension stuff doesn’t apply to them, but it does. By the time they approach retirement age, the State Pension age may have risen to 70, or beyond. As the BBC’s personal finance correspondent Kevin Peachey says:

“How long we work before we receive state financial support in retirement is a vital issue for long-term financial planning.”

Your pension, your retirement and you

To discuss any aspect of your financial planning for yourself and your family, call us at Panthera Wealth. Your initial no-obligation online consultation is free, so you can work out what’s important to you, and whether we’re the right team to help you reach your goals. 

 

Panthera Wealth

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