The truth behind your state pension

THE state pension provides an incredibly valuable benefit – the promise of a basic standard of living in retirement when you reach pension age.

Under the current law, the Government is meant to review the official state pension age every five years, and the deadline for the next review was supposed to be in early May.

However, it recently announced a delay to any decision, saying it would make an announcement after the next general election, which is likely to be around 18 months away.

Given the recent civil unrest in France, where rioting broke out on the back of the plans to increase the state pension age by two years to 64, still two years less than it is in the UK, it may come as no surprise the Tories took the easy route out.

But, kicking the decision down the road doesn’t help anyone trying to plan their retirement today. So what do you need to know and what can you do to take control of your own plans?

The first step is to work out your official state pension age (gov.uk/state-pension-age), which is calculated from your date of birth. There have been several changes to the age you can claim over the past few years, which has caused chaos for many people’s plans, especially as state pension ages were being aligned between men and women.

The Government must now give 10 years’ notice of any change to your pension age, so the closer you are to your own retirement the less likely you are to be affected by any future changes.

However, if you are younger than around 50, you’ll need to keep an eye out for any coming announcements, as the goalposts are likely to change again, and not in your favour.

Andrew Tully, from pensions giant Canada Life, explains: “The state pension system is complex, but there are two key things you need to know. When you were born will determine when you can claim your pension, and how many years National Insurance record you have will determine how much you’ll receive.”

So, under the current rules, you know when you can claim your pension, but what can you do if you don’t want to wait to retire?

There are a couple of key things to look out for. Firstly, your normal minimum pension age, the earliest you can access any private or company pensions, is 55. This is moving to 57 in 2028, in line with the state pension age changes. The normal minimum pension age is moving to 10 years before the earliest point you can claim your state pension.

So, in future, if the state pension age increases again, then the point at which you can access your own pension will also change.

Remember your pension will be stretched if you access it earlier than your planned retirement, so think about any other savings you might have to tide you over until your state pension kicks in, for example, using ISAs if you’ve saved into them.

If you are lucky enough to have a final salary-linked pension, then you may be able to access your pension before your nominated age (historically 60, although many schemes are increasing the age), but the amount you’ll receive will be reduced.

There are some protected schemes in the public sector where this doesn’t apply, for example, in the police and fire services where the pension age is earlier. You can also think about your home as a source of income. By using an equity release plan, you can free up some of the equity in your home to use as you wish, but these plans can be expensive given the changes in interest rates.

Always seek advice and speak to your family before making any decisions.

Andrew Tully adds: “If you are thinking of slowing down before your state pension kicks in, think about all your potential sources of income as there may be more taxefficient ways of generating an income than dipping into your pension. A financial adviser will ensure your plans stay on track.”

Despite the Government delaying announcing the decision around the future state pension age, the independent review suggested accelerating the current changes earlier than presently planned, by bringing the age you can claim up to 68.

Perhaps we’ll see people protesting out on the streets in the UK if that happens.

What this does tell us all is we should take control of our own retirement plans, and you can’t plan soon enough.

‘‘ If you are younger than around 50 you’ll need to keep an eye on developments