Some important changes to state pensions are taking place from April that will affect how much money pensioners receive and when some people can retire. As the new tax year begins on Monday April 6, pensioners will get more income. The triple lock guarantee means the state pension goes up every April based on whichever is highest among three measures: total earnings growth from May to July the previous year, Consumer Prices Index inflation in September the previous year, or 2.5 percent.
This year the increase is 4.8 percent based on wages. People getting the full new state pension for those who reached state pension age on or after April 6 2016 will see their income go up from £230.25 to £241.30 each week. Those on the full basic state pension under the old system could see their weekly payment rise from £176.45 to £184.90. Many pensioners do not get the full state pension. Pensions minister Torsten Bell said that after a lifetime of work & contribution people deserve a decent retirement.
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Raising state pensions faster than prices and ensuring it is reliable makes that a reality for millions. Another major change is also happening as the state pension age begins a gradual rise from 66 to 67 in steps that will affect new pensioners. Zoe Alexander who is executive director of policy and advocacy at Pensions UK said the state pension age is rising for three reasons: improved life expectancy supporting sustainable public finances and improving fairness between generations. People naturally want certainty about when they can claim the state pension and the upcoming rise in qualifying age may cause some confusion. Because the change happens in monthly steps a single day’s difference in your birthday can shift your state pension age by weeks or months.
You can check when you can claim your pension through gov.uk. Once you know your date think about whether this creates a gap between when you plan to stop work & when the state pension begins. If it does take time to plan ahead. A few simple checks today can make a real difference to your income and peace of mind later. Kirsty Ross who is proposition director for People’s Partnership that provides People’s Pension said the value of the state pension is essential information for millions of people including those still working as it forms the foundation of retirement income for most savers.
For those thinking about retirement it is also crucial to understand the age at which they can start claiming the state pension. For example people hoping to retire early will need to plan how they will bridge the gap until their state pension starts. She said workplace pension schemes provide planning tools that will help their members work out whether they are saving enough through automatic enrolment or other pensions to achieve the kind of retirement they hope for. Rachel Vahey who is head of public policy at AJ Bell said that while the increase in state pension age to 67 will shock many this is very much the beginning rather than the end of this story.
Under current plans the state pension age will rise again to 68 between 2044 and 2046. She said that in future a government may need to bring this forward & possibly set out plans to increase the age further still. The Institute for Fiscal Studies said last week that increasing the state pension age delivers significant savings to public finances with the rise from 66 to 67 expected to save around £10 billion a year by the end of Parliament. But it also said that past evidence shows that an increased state pension age reduces incomes and increases poverty rates among affected groups and that the effects are felt particularly hard by those who are already out of work & relying on working age benefits.
Laurence O’Brien who is senior research economist at the IFS said it makes sense to increase the state pension age in response to public finance pressures caused by an ageing population as the fiscal savings are significant. But it does reduce household incomes & therefore leads to higher poverty rates for affected age groups. And the people most affected are often those least able to adjust through staying in work or drawing on other savings such as those already out of work or in poor health.Small changes in birth dates can lead to real differences in when people receive their state pension. The increase from 66 to 67 does not happen for everyone at once.
It rises gradually each month. People born on or after April 6 1960 might qualify at 66 and one month or 66 & two months. This continues until people born on or after March 6 1961 reach a full state pension age of 67. Many people have a general idea of when the state pension starts but the increase might surprise some. The Government calculator helps people check their state pension age. Some people may discover they have a financial gap year. If someone planned to stop working at 66 but their state pension age is later they may face an unexpected period between their final paycheck and their first state pension payment.
This could be a useful time to review savings & emergency funds or consider whether working a few extra months could help cover the gap. Many people also need to consider other rule changes when planning retirement. The normal minimum pension age rises from 55 to 57 in April 2028. This is the age when someone can access their workplace pension. The system is complicated but checking your state pension age and creating a basic plan is a sensible starting point. Retirement planning is not something you do once and forget. A yearly review of pension forecasts & savings and state pension age can prevent surprises later.
Pensions UK updates its retirement living standards regularly. These standards help people understand if they are on track for the lifestyle they want in retirement. Midlife reviews or action plans can help people check if their retirement plans are realistic. Once people know their retirement date and understand any gaps they can make a simple plan & take control of their retirement.
