Posted on: 31st Oct 2018
In recent years, the State Pension has changed dramatically. It’s important to learn what you can expect from it and when, as well as how to build it into your savings plan. This can help you to make the most of life after work. Here, we explain how it works and what it means for you.
What is the Stateand how does it work?
When you reach a certain age, you will receive monthly payments from the government. A flat-rate new State Pension was introduced in April 2016 to make things simple. However, the older Basic State Pension is still available for those already receiving it.
To qualify for the State Pension, you must have a least 10 “qualifying years”. This is often achieved by paying National Insurance contributions while you work. However, you could also get credited with years while you’re unemployed or have low earnings.
How does it differ from a personal or workplace?
Some may find this confusing. A workplace pension is offered by your employer and a personal pension is set up by yourself. You can choose how much you contribute into these to help save for your . As contributions are invested, the value of these can go down as well as up. They could be worth less than what you paid in. You can usually begin to take money from your own savings from the age of 55. However, this could change in the future.
How much will I get from my State Pension?
Though it is referred to as a flat-rate State Pension, not everyone gets the same. It will depend on when you begin to claim and your NI record. For the full amount, currently at £164.35 a week, you will need to have paid or been credited with at least 35 years of NI contributions.
Are there any reasons I may not get what I expect?
It’s important to check if you were a member of a “contracted-out” pension scheme. This happens when you join a work or personal pension scheme. It means you have built benefits in private pensions, instead of the State Pension. You will have also paid lower NI contributions.
Many who do this don’t know what it means or how it can impact their State Pension. It’s important to check with your pension provider if you have been contracted out as it could mean you get less than expected. You can use the Pension Tracing Service if you have lost your pension provider details.
Gaps in employment
Many of us have gaps in our history of employment. This could be a period of self-employment or taking time off to raise a family. In some cases, you can bridge this gap if you claim certain benefits. This could be something such as jobseekers allowance or child benefit.
Topping up Contributions
It is possible for you to top up your NI contributions. You will need to balance the cost of this now with the benefit of getting a bigger state pension at retirement.
When will I receive the State Pension, and will this change?
The State Pension calculator can help determine this. It is calculated based on your date of birth and gender. Bear in mind, however, that it will be the same for both men and women in the future. From 2019, the State Pension age will increase for both men and women to reach 66 by October 2020.
What if I want to retire sooner?
If you choose to retire before reaching your State Pension age, this is where your life savings can make all the difference. Increasing the contributions to your workplace or private pension by just a little can make a huge difference in the long run. You have more choice and flexibility regarding taking your life savings. You can usually take this from the age of 55.
Will the State Pension be enough?
While it can help your plans for retirement, the basic State Pension is below minimum wage. Everyone should make the most of their State Pension, but it is unlikely that they can rely on it for a comfortable lifestyle. This is certainly the case if they plan to retire before their late 60s.
Over to you
If you can take extra steps to boost your retirement income now, your future self will be extremely grateful. This includes things such as increasing contributions into a private or workplace pension. You will also benefit from having an independent financial adviser by your side to ensure you have an enjoyable retirement. Get in touch with Haven IFA to see how we can assist with giving you the most from your pension savings.