In this guide: The pension rules, how workplace, state & personal pensions work & retirement planning
When you have worked hard all of your life, saving the money you will need for use in your retirement, your pension is a critical consideration – its value and the way you choose to use the savings are likely to determine just what kind of life you are able to enjoy once you have retired.
In addition to the changes to the retirement age, there are also changes to the pension schemes themselves – through the application of “new rules” and “old rules”:
Determining how much state pension you might receive after retirement is difficult, but you can get a State Pension Statement which shows how many qualifying years you have paid in National Insurance contributions and a forecast of how much you are likely to get.
You may apply for your pension up to four months before it becomes payable.
Please note that this information is correct as at February 2017
An annuity is essentially an insurance product which allows you to convert the savings that have accumulated in your pension pot into a regular, guaranteed income which is payable for the rest of your life – explains a guide published by the Consumers’ Association’s Which Magazine:
Further reading: Visit our Annuities section and use our free annuity calculator to see how much you can boost your pension income.
A workplace pension provides a way for you to save for your retirement by making contributions to your pension pot each month. You might also see it described as an occupational, works, company or work-based pension.
A workplace pension is separate from and received in addition to any State Pension for which you qualify:
SIPP's or the Self-Invested Personal Pension can be used in several ways to manage your pension in which you have full control over where your money is invested and is a tax effcient way of saving for retirement.
If you want to find out more about SIPPs, a user-friendly guide is published by the government-sponsored Pensions Advisory Service.
With life expectancy in the UK rising year on year, it is not unreasonable to look forward to a retirement that is almost as long as the time you spent at work.
Retirement is likely to be such change to your lifestyle and circumstances that the sooner you begin the prepare for it, the better your chances of enjoying the retirement you dreamt about and deserve.
To help you start that preparation, we have addressed a number of points relating to this period of pre-retirement:
In the past, you might not have had much choice in the matter – you stopped work when you reached the age of 65, whether you could afford to or not.
With the removal of a statutory retirement age, employers who are entirely content to employ older workers and a proliferation of different sources of workplace and personal pensions – the choice is very much your own.
Please visit our section on Pensions for more information.
But can you afford to retire whenever you choose?
the longer your retirement, the more money you are going to need – for a longer period of time;
Planning when to retire – and whether you can afford to do so – needs to take into account the journey you are making through life in retirement and the changing spending habits that accompany those changes.
In order to understand those changes, some sources – including a story in the Daily Telegraph newspaper – identify three basic retirement stages:
However you choose to spend your retirement and however quickly you progress through the notional “three stages”, you continue to need money to live on and to support your lifestyle at any particular point in time.
Saving for the day you no longer have a regular income from work, but must rely on some form of savings to see you through a full and enjoyable retirement – and sooner you start making provision for those savings the better.
Saving for your retirement is an essential part of pre-retirement planning – and is likely to begin as early as your 20s or when you start work:
Pre-retirement is the time for planning what happens during your retirement – not only what you propose to do, but more importantly perhaps, how you are going to finance your lifestyle when there is no longer a steady income from work.
paying off your debts might require a careful balance between the relative advantages and disadvantages in using any lump-sum pension payment or instead repaying any debts from your pension income;
At what age is it possible to retire and receive my state pension?
Since the early years of the National Insurance scheme in the UK, the retirement age was 65 for men and 60 for women. This was also known as the statutory retirement age and many employers used it as the “default” age at which an employee could be forced to retire. There is no longer such a default retirement age.
The state retirement age – the age at which you qualify for receipt of a state pension – is used by many as a general yardstick for determining when to retire.
Lengthening life expectation has made it increasingly difficult for the National Insurance scheme in the UK to remain financially viable. In response, the government has announced a number of changes to the 65 years for men and 60 years for women that previously held sway for so long.
As the Daily Mail’s This is Money pages explained in an article dated the 4th of January 2017, one of the first steps by government was to gradually bring the retirement age for women in line with that of men. These changes are being phased in until their completion in November 2018 – with a woman’s precise state pension age being determined by the month in which they were born.
After the retirement age for women has risen to 65 (in line with men) by November 2018, further changes are already set to be made to the retirement age for both men and women:
At its very simplest, the 65 years of age for men and 60 years for women is no longer the automatic cut off point and end of anyone’s working life.
You can read more about the new Pension rules here (this will link to copy within Pensions section)
The statistics speak for themselves. We are all living that much longer.
According to the latest figures released by the Office of National Statistics (ONS) in Britain the life expectancy at birth is 79.1 years for men and 82.8 years. This is a considerable increase on the
figures at the beginning of the 20th century when life expectancy was a mere 45 for men and 49 for women.
More startling, perhaps, is the projection made in a recent paper by the Royal Geographical Society, entitled 21st Century Challenges, that one in every three children born in the year 2013 is expected to live until they are 100 years old or more.
As a result, we may be reaching – and in some cases, have already reached – a situation in which people spend a greater proportion of their lives in retirement than they do at work.
This sea of change in the work life balance clearly has far reaching implications, not least for our whole concept of retirement, how to prepare for it and how to live it.
Included in those implications are some fundamental questions you might want to address, such as:
These are all questions that bear closer examination – so let’s see what financial help may be available from the state, in return for the National Insurance contributions you have been paying throughout your working life.
Although we may be living longer, the chances of a disabling medical condition remain present throughout many retirement years.
Limited assistance is available if you are disabled and these are designed to help towards meeting the additional living expenses you face because of your disability.
Previously, this has taken the form of Disability Living Allowance (DLA), but this is being phased out, to be replaced by a Personal Independence Payment (PIP), and it is this for which new claimants need to apply.
If you are already in receipt of DLA, and were born on or before the 8th of April 1948, payments will continue to be made for as long as you need them. If you were under 65 years of age on the 8th of April 2013, you will be reassessed for the new PIP when DLA is finally withdrawn in 2018. Personal Independence Payments, however, are not available for those aged over 65, who might instead qualify for an Attendance Allowance.
Disability Living Allowance (DLA) – rates
Personal Independence Payments (PIP) – rates
A comparison of the figures for the former Disability Living Allowance and Attendance Allowance reveals that the level of financial support available for those who need care at home during their retirement have been significantly decreased.
Housing Benefit is another of the publicly funded sources of help – for those of working age and for the retired – that is being phased out and replaced by Universal Credit.
Housing Benefit is intended purely to help people on low incomes to pay their rent. It is available only for tenants and not for those looking to pay a mortgage or other form of home loan.
Housing benefit is paid by your local council and the amount you get depends on a range of factors such as the amount of rent you pay, what income you have – including that from other benefits – and where you live.
A story in the Mirror newspaper on the 23rd of November explains some of the background to the introduction of Universal Credit, which is intended eventually to replace a whole catalogue of existing benefits – Employment and Support Allowance, Income Support, Jobseekers Allowance, Working and Child Tax Credits and Housing Benefit.
When it comes into nationwide effect, however, Universal Credit is not available to anyone over the state pension age. Instead, pensioners seeking financial help with the payment of rent or any other expenditure if their income is less than the current maximum state pension payment of £155.60 a week
Almost 1 in 5 people over the age of 50 have been targeted by scammers according to recent research and many are being caught out by what appear genuine pension specialists, so take care.
Pension scams are big business potentially conning people out of thousands of pounds invested in their pension pots.
If you think you have been scammed call the Action Fraud Line on 0300 123 2040.
There is also a useful website with more details on how to avoid being scammed here at The Pension Regulator
Discussion about pensions may often appear overly complicated and involved, not least because of the number of unfamiliar technical terms that are widely used.
The following jargon-busting glossary is our quick guide to some of the terms you are most likely to encounter:
This is the pension to which you are entitled if you have made National Insurance contributions for a prescribed, minimum number of years;
Although the earliest you may qualify for payments of a State Pension is 65 (60 for women), both of these are being raised in the very near future;
Just as the term suggests, this is a private pension scheme, entirely separate from your National Insurance contributions and the State Pension which follows;
Private or personal pensions are tax-free money purchase plans which you may set up independently of any scheme operated by your employer
Also called occupational pensions, these are run by your employer as part of the overall remuneration package you receive for the job;
Both you and your employer contribute to a pension fund which becomes available for withdrawal at an agreed retirement age and the government also contributes to the benefits by way of tax relief on payments you make to your workplace pension scheme
Just as the term suggests, this refers to a once quite widespread type of pension scheme in which the amount of your pension is related to the final salary you were earning immediately before you took retirement;
Although many are still in payment, it is increasingly rare for those in work to be offered any such scheme – simply because they are so expensive for pension funds to provide.
These do not rely upon your final salary at work, but instead relate directly to the contributions made to a pension pot by you and your employer;
For that reason, they are also known as defined contribution plans;
The amount of pension you eventually receive is determined by the total amount that has been contributed and the performance of the investments made by the pension fund managers
Stakeholder pensions are a specific variety of personal pension plan, to which you make your own private contributions;
With a stakeholder scheme, however, there are government regulations limiting the amount of fees and charges that may be raised by the pension fund managers and other rules governing security of and access to the fund
Also known as pension “unlocking” this typically refers to attempts to access and withdraw funds from your pension pot before you reach the age of 55;
55 is the age at which you are legally entitled to access your pension funds, although the rules of a particular workplace, personal or stakeholder scheme may set the qualifying age somewhat later – say, 60 or 65;
Although methods exist for accessing the future value of your pension fund before you reach the age of 55, there are frequent warnings – not least from the financial services regulator, the Financial Conduct Authority (FCA) - about the costs you may face in early release of the funds, including your tax liabilities. That is why seeking specialist pensions advice is always recommended.
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