How to Beat the State Pension Age Rise

September 2019
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Think tank, The Centre for Social Justice, has proposed an increase in State pension age to 75 within the next 15 years. The Department for Work and Pensions said this is not Government policy. It has committed to giving 10 years notice of any further increases. For current State pension ages see the table below.

Current State Pension Ages

Age now

60

55

50

45

40

State retirement age

66

67

67

68*1

68*1

*1 Currently 67 but proposed to be increased to 68.

Private pensions can be accessed from age 55 onwards, or sooner if in severe ill health. It is possible to make withdrawals before the State pension starts, to gap fill income before then and then stop or reduce these when State pension commences. So how can people plan a retirement to start at a time of their choosing, despite the rising State retirement age?

- Invest in a cash flow plan. The more you can define the lifestyle and level of net income you are likely to need to live it, the better your chances of achieving it. It will help define the gap between when you would like to retire and your state pension age. It can inform the level of investment risk needed and the amount you must save. It can be updated from time to time, to take account of investment returns on savings, inflation and taxation and changing personal circumstances.

- Join your employers pension scheme at the earliest opportunity. All employers are required to pay into a pension for employees who earn £10,000 pa or more and those whose earnings are in excess of £6,136pa may also join voluntarily. Employees pay 4% of their eligible earnings (up to £50,000 pa) with the employer and 20% tax relief matching this.

  • Top up the minimum 4% contribution required. Additional pension savings of up to 100% of earnings or £40,000 whichever is the lower, can be made and benefit from tax relief at your top rate. (Those with income above £110,000 may have a lower allowance).
  • If selfemployed, or you do not wish to add to the employer’s scheme, you can have your own private pension.
  • The earlier you start saving, the less it will cost you to retire early. This is because of the effect of compound investment returns over a longer period as well as the additional amounts paid in over time.
  • Take an appropriate level of risk with your longterm pension savings. If these are not needed for decades ahead, taking a medium to high level of risk now is more likely to match inflation over the longer term. Taking too little risk could mean waiting longer before you can afford to retire.
  • Make sure that you get the most out of the State pension when you become eligible for it. From April 2016 onwards there is a new flat rate pension scheme of £168.60 per week, available once 35 years NI contributions have been paid. Only those reaching State retirement age after 2051 will automatically qualify for this.
  • Get a forecast of your State pension. If it is less than £168.60 pw consider claiming top ups which are free or paying in extra voluntary contributions. Free credits are payable to carers of children under 12 or adults who qualify for disability benefits. See Gender Pension Gap. Each year’s credit or top up buys £250 pa of extra state pension. Top ups cost £780 per year currently. A higher state pension payable later will enable you to draw more out of your private pension earlier.
  • Non earners aged 0 -75 can also get the benefit of tax relief on pension savings with up to £2,880 per year (£240 per month) being topped up with tax relief at 20% to £3,600 (£300 per month) even if a non-taxpayer.
  • With the State pension age likely to rise in line with life expectation, parents may wish to give their children the option of an earlier retirement date by starting a pension plan for them.

Kay Ingram
Director of Public Policy, LEBC

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. A pension is a long-term investment. The fund value may fluctuate and can go down. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.  If you are unsure of the suitability of any investment or product for your circumstances, please contact an adviser. All information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation, are subject to change. Taxation advice is not regulated by the FCA. The Financial Conduct Authority does not regulate some aspects of Auto-enrolment.

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