Key changes to the State Pension age and what you should do
Like it or not, the State Pension age keeps on rising – and there could still be more changes to come.
The latest move means people born between 1970 and 1978 will have to wait until 68 to claim theirs, an extra year to what they were expecting.
The knock-on effect is that you’ll either have to work for an extra year or make additional provision to cover any shortfall until you’re 68.
So if you were born between 6 April 1970 and 5 April 1978 and budgeting to retire at 67 with the State Pension as part of your retirement planning
, you may need to review your plans.
Options available to prepare for the change:
- Work longer;
- Increase pension provision;
- Switch funds to a different scheme;
- Get a thorough appraisal from an independent financial adviser.
Wren Sterling adviser David Yates explains: “The impact is that if you were born after 1970, you’re going to be 68 when you get the state pension.
“In theory, you are giving up a year’s state pension. People will either have to work a year longer or have enough private pension provision in place over and above what they were already planning.
“People don’t always look at the state pension age as their age to retire. In reality, many people who have pension savings are covered for retirement at 65 anyway, and it is the provision of a year’s state pension they will be missing.
“People will either work longer or increase pension provision in other areas.”
The proposed change is not yet legislation but it is pencilled in and likely to happen in the next few months. The amount people get will be equal for men and women from next year at £159/week, which is £8,300/year as long as you have made full National Insurance contributions. The rate moving forward depends on the 'triple-lock'. The state pension triple-lock is a guarantee to increase it by the highest figure of either inflation, average earnings or a minimum of 2.5% each year.
David said: “If someone wants an extra £10,000 in their pension pot by the time they retire, paying extra in every month for the time they have left until retirement won’t be a huge burden for a younger worker.
“Another way, for those with fewer years left to pay in, might be to switch some funds to an investment with a greater scope for growth, but that’s something that also offers a greater risk.
“People with a final salary scheme can look to see if they can still afford to retire at 67.
“A review of people’s options is not complicated but it has to be a thorough appraisal. People may have several frozen pension plans of different sorts from previous employment. What is in frozen pensions, current plans and the state pension projection will all form part of the decision-making process on what to do next.”
Work and Pensions Secretary David Gauke told Parliament of the Government’s intention to increase the state pension age from 67 to 68 over two years from 2037.
He said in the House of Commons: “This brings forward the increase by seven years in line with the recommendation made by John Cridland and following careful consideration of the evidence on life expectancy, fairness and public finances.
“In 1948 when the modern state pension was introduced, a 65-year-old could expect to live for a further 13.5 years. By 2007 when further legislation was introduced to increase the state pension age this had risen to around 21 years and in 2037 it is expected to be nearly 25 years.
“Future pensioners can still expect on average more than 22 years in receipt of the state pension.”