According to inews, the work and pensions secretary, Mel Stride, has hinted that the “pretty hairy” state of the UK’s public finances may mean the State Pension Age (SPA) is increased earlier than expected. The government is considering increasing the SPA to 68 six years earlier than currently planned to help reduce the cost of the State Pension on the public purse.
If the government does decide to increase the SPA earlier than expected, it could affect you if you were born between April 1965 and April 1971. If the move goes ahead, you may receive £10,000 less in State Pension, something that may result in you having to postpone retirement.
Read on to find out more about the potential SPA increase and how a financial planner could help you keep your retirement plans on track if it happens. First, let’s look at how the State Pension works and why it is so important to so many Britons.
The State Pension provides a significant boost to your retirement income
While it won’t fund your retirement lifestyle by itself, the State Pension can provide a substantial boost to the income your private pension provides. In 2022/23 the full new State Pension is £185.15 a week, or £9,627.80 a year, which could help you retire earlier than you would otherwise have been able to, or provide a higher standard of living when you finish work.
To receive a full pension you will typically need to have paid National Insurance contributions (NICs) for 35 years. If you have not got 35 years’ worth of contributions, you will usually receive a portion of the full amount.
The State Pension normally increases every tax year under the triple lock system to help the benefit maintain its spending power. In April 2023 the pension is expected to increase by 10.1%, something that many pensioners are welcoming after 2022’s soaring cost of living.
A review of the State Pension Age is expected in early 2023
Under the Pensions Act 2014, the government is required to regularly review the SPA. The findings in its latest review are expected to be released in early 2023, and could recommend that the SPA is increased earlier than currently intended.
In 2023 the SPA for men and women is 66, yet it’s set to rise to 67 by 2028 and then again to 68 by 2039. As explained above, the government is considering increasing the age to 68 in 2033.
If it goes ahead, the increase could affect you if you’re between the age of 51 and 57, and it could result in you receiving £10,000 less in State Pension . As a result, you may have to delay your retirement, reduce your standard of living when you finish work or boost the value of your pension to cover the reduction.
A financial planner could help keep your retirement plans on track
The good news is that a financial planner could help you increase the value of your retirement fund so that you can keep your retirement plans on track and enjoy the lifestyle you want. Let’s look at three ways a planner could help.
1. Increase contributions
As pension contributions typically receive tax relief, every £100 you contribute to your pension typically costs just £80 if you’re a basic-rate taxpayer (2022/23). If you’re a higher-rate taxpayer it will usually cost £60, and if you are an additional-rate taxpayer you may only pay £55.
As you can see, increasing your contributions may provide your pension pot with a significant boost in a relatively short space of time, which could help keep your retirement on track.
Please remember that while you can contribute as much as you would like to your pension, the level of tax relief is typically restricted to your Annual Allowance. In 2022/23, this is £40,000 or the amount you earn, whichever is the lower.
If you’re a very high earner, the amount of pension contributions that receive tax relief may reduce significantly to just £4,000.
If you have a substantial lump sum you may want to consider “carry forward”, which allows you to use unused amounts of Annual Allowance from the last three years. This means you may be able to contribute up to £160,000 in 2022/23, and still receive tax relief.
2. Consider increasing your pension’s level of risk
While having too much risk can jeopardise your retirement, so can not taking enough. This is because the assets within your pension pot will typically consist of stocks and shares, bonds and cash.
As potential growth is provided by the higher-risk funds, such as stocks and shares, not having enough exposure to them could lower the potential growth of your retirement fund. A financial planner could help ensure that your pension is exposed to the right level of higher-risk funds, which could help boost its growth potential while remaining at a level of risk you’re comfortable with.
3. Find lost pensions
According to PensionsAge, in 2022 there was an estimated 1.6 million pension pots worth £37 billion that had been “lost” or were dormant in the UK. If you have lost previous pensions, a financial planner could help you find them, which could give your retirement fund a significant boost.
This could help ensure you can stop work when you originally intended to, and enjoy the standard of living in retirement you want. Furthermore, a planner can explain the best options available to you when you find a pension, which might include consolidating them with existing ones, as this may provide greater growth potential and could reduce fees.
Get in touch
If you would like to discuss whether an increase in the SPA could affect your retirement plans, and how we may be able to help you keep it on track, please contact us on firstname.lastname@example.org or call 01904 655 330.
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This blog is for general information only and does not constitute advice. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.