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. With a new tax year starting on Monday April 6 pensioners will get more income. The state pension goes up every April under the triple lock guarantee. This means it increases based on whichever is highest out of 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 reaching 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. Raising the state pension faster than prices ensures it is a pension they can rely on and makes that a reality for millions.
Another major change is also happening with the state pension age starting to rise gradually in steps from 66 to 67 affecting 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. These are improved life expectancy supporting the sustainability of public finances and improving fairness between generations.
People understandably want certainty about when they can claim the state pension and the upcoming rise in the qualifying age may be causing 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 and when the state pension begins. If it does take a moment 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 said the value of the state pension is essential information for millions of people including those still in work. 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 kicks in.
She said workplace pension schemes provide planning tools which 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 the state pension age to 67 will come as a shock to 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 & 2046.
She said that in future a government may need to bring this forward and 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 the public finances. The rise from 66 to 67 is expected to save around £10 billion a year by the end of the Parliament.
But it also said that past evidence indicates that an increased state pension age reduces incomes and increases poverty rates among the affected groups. The effects are felt particularly acutely by those who are already out of work and 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 the public finance pressures caused by an ageing population. The fiscal savings are significant but it does reduce household incomes & therefore leads to higher poverty rates for affected age groups.
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The people most affected are often those least able to adjust through staying in work or drawing on other savings for example those already out of work or in poor health.The increase from 66 to 67 will not happen for everyone at once. The change happens gradually over time in monthly steps.
Anyone born on or after April 6 1960 might qualify at 66 and one month or 66 and two months. This continues until people born on or after March 6 1961 reach a full state pension age of 67.
Most people have a rough idea when their state pension starts but the increase might surprise some. The Government calculator helps you check your state pension age.
Some people might discover they have a financial gap year. If you planned to stop working at 66 but your state pension age is later you could face an unexpected period between your final paycheck and your first pension payment.
This would be a good moment to review your savings and emergency funds or consider working a few extra months to cover the gap. You should also think about other rule changes when planning retirement.
The normal minimum pension age for accessing workplace pensions will rise from 55 to 57 in April 2028. The system can be confusing but checking your state pension age & creating a basic plan is a sensible starting point.
Retirement planning needs regular attention rather than a one-time setup. Reviewing your pension forecast and savings once a year helps avoid surprises later.
Pensions UK updates its retirement living standards regularly to help people see if they are on track for their expected lifestyle in retirement.
Midlife reviews or action plans help people check if their retirement plans make sense. Once you know your retirement date and understand any potential gaps you can create a straightforward plan & take charge of your retirement.
