State Pension age hiking - Is it worth relying on state pensions?
“For many, retirement is a time for personal growth, which becomes the path to greater freedom.” –Robert Delamontague
State pensions are regular payments paid weekly from the government when someone reaches the State Pension age. The amount of state pension you receive and the qualifying number of years you need to have of national insurance payments will depend on the year you were born. Moreover, the qualifying amount you receive will depend on factors such as how much you contributed in national insurance payments, including contributions you made whilst in employment and contributions credited when you were unable to work.
The current State pension age in the UK is 66 for both men and women. It will increase to 67 by 2028 and 68 between 2044 and 2046.
However, speculation has arisen about the state pension increasing to 68 earlier than anticipated, though this has not been confirmed.
Female workers have voiced their concerns about the rise in state pension age as they cautioned about the physical strain of working till later in life and the impact this will have on millions of people who have to work until 68.
Reports were denounced by campaigners on retirement age possibly rising to 68 as soon as 2035, stating that it is “completely wrong“ for the government to impose this on people, for them to “work until they drop”, according to the Independent.
There are many pensions for people to choose from state to private pensions, although there is usually an eligibility criterion that people must meet to receive one of these pensions. Individuals typically consider their pension options whilst in employment, as employers and recruitment agencies usually recommend pensions to employees so that they can start making contributions and preparing for retirement in advance to increase their chances of getting a decent retirement fund.
How much State pension will I receive?
The quantity of state pension you receive will differ according to your circumstances and when you became eligible for the state pension.
New State Pension
The new full state pension is £185.15 per week. There are circumstances where you may receive a higher amount, such as exceeding a specific amount of Additional State Pension or delaying receiving your state pension.
Eligibility for New State Pension
The new state pension is for men born on or after 6th April 1951 or women born on or after 6th April 1953.
National insurance record
There is usually a requirement for persons to have a minimum of 10 qualifying years on their national Insurance record to receive any state pension. However, it is not required to be ten years in a row.
One or more of the below points must apply to you:
You paid National Insurance contributions whilst in employment
You received National Insurance credits, for instance, if you were not working, sick or a parent or carer
You paid voluntary National Insurance contributions
Even if you lived or worked aboard, you may still be entitled to the new state pension.
If you paid married women’s or widow's reduced rate contributions, you might also be eligible
Basic State Pension
The basic state payment is £141.85 a week for 2022-23. This applies to anyone who reached state pension age before 6th April 2016.
The basic state pension will increase by 10.1% in 2023-24 to £156.20 weekly. However, a substantial amount of people receive more than the basic state pension because they have also stocked up on additional state pension, which is centred around earnings made during your working life.
Eligibility for basic State Pension
To qualify for the basic State Pension, you will generally need 30 qualifying years of National Insurance contributions or credits to get the basic State Pension.
If your qualifying year's amount to less than 30 years, your basic State pension will be lower than £141.85 per week. However, you may be able to increase your eligibility amount by paying voluntary national insurance contributions.
How could you boost your basic state pension?
There are cases where you will not be eligible for the entire sum of money, which is currently £141.85 per week.
It is recommended that you seek financial advice while planning your retirement income.
Delay your state pension
If a state pension is deferred, your payments can increase once you claim. Deferring your pension for five weeks simultaneously boosts your pension by 1%.
The extra state pension can be paid to you in a payment form of your choosing, either through increased weekly payments or a one-off payment if you delay your payments for 12 months.
There are also other ways of increasing your pension.
If you have a spouse or are in a civil partnership, you could be eligible to improve your basic pension to a maximum of £85 a week if you are getting below this rate. You could also meet the criteria for an Additional State Pension, or pension credit may be a viable option if you have a low salary.
Is it worth relying on a state pension?
The conditions and types of pensions change, especially regarding the state pension; therefore, it is best not to rely solely on a state pension. The best thing to do is to have a second income stream for your pension fund, such as a savings account like Lifetime ISA, which can be used to save for retirement and accessed once you reach the age of 60.
In addition, looking into other pensions, you might be eligible for is also a good step forward, as you might find another pension that is as good a fit.
Times is of the essence, which means that although retirement could be far away it is still best to set up a retirement plan as early as possible though which route you choose to follow when it comes to your retirement fund is entirely your choice; however, it is worth having a plan B in case plan A does not go according to plan.