For more than a century, the State Pension has played a vital role in many people’s retirement strategy, as it provides an income boost that many retirees rely on to maintain their lifestyle. If you’re approaching retirement, you might be wondering how the State Pension could slot into your financial strategy, and what regulations exist around it.
With inflation remaining high as we head into 2023, the significant increase to the pension this April could make it even more important to your retirement plans. So with this in mind, read on to discover six important fact about the State Pension that you need to know.
1. The State Pension Age is 66 (but this is changing)
In 2022/23, the State Pension Age for both men and women is 66, although the government plans to raise it to 67 by 2028 and to 68 between 2044 and 2046. That said, the increase to the age of 68 may happen sooner than this according to the media.
One article in the Guardian reveals that the government is considering increasing the SPA to 68 as early as 2035. That said, inews has also reported that the increase may be brought forward to 2033.
If you want to know when your SPA is, visit the government’s State Pension calculator, which will confirm when you’ll reach the State Pension Age under current rules.
2. The State Pension’s spending power is protected by the “triple lock”
In 2010 the government introduced the “triple lock”, which aims to ensure the State Pension does not lose value in real terms. To achieve this, the benefit is increased in line with inflation as a minimum.
To help guarantee this, it rises each April in line with the highest of the following three measures:
- Inflation, as measured by the Consumer Price Index (CPI) in September of the previous year
- The average increase in wages across the UK
In the 2022/23 tax year, the triple lock was suspended after the government’s furlough scheme, which was introduced during the first Covid lockdowns, created an artificially high average wage. According to official data, it increased to 8.8%.
Yet in November 2022, the chancellor announced that the government would honour the triple lock in 2023/24, which means that the State Pension is set to increase significantly in April 2023. We will consider this next.
3. The State Pension increases by 10.1% in 2023/24
In 2022/23, if you’re entitled to the full new State Pension you will typically receive £185.15 a week, or £9,627.80 a year. Yet, because of the abovementioned triple lock, the chancellor confirmed that the benefit will increase by 10.1% in April 2023.
This is because in September 2022, inflation stood at 10.1%, the Office for National Statistics reveals.
As a result, the full new State Pension will typically increase to £204 a week, or £10,600 a year, meaning you could be £972 better off by the end of the 2023/24 tax year. Anyone who reached State Pension Age before April 2016 should receive £8,100 for the year, or about £156 a week.
4. The State Pension you receive depends on your National Insurance contributions
To receive all of your State Pension you will typically need between 10 and 35 years’ worth of National Insurance contributions (NICs) on your record. If you have fewer than 35, you will usually receive a portion of the full amount.
If you don’t have a full 35 years, you’re allowed to buy additional years to fill in the gaps, which in 2022/23 cost £15.85 a week. This means that you could buy a whole year’s worth for less than £825.
That said, the rules around this change in April 2023, so you won’t be able to fill as many gaps in your NICs record after this date. We will look at this now.
5. Important changes come into force in April 2023
In 2022/23, you can buy additional Class 3 NICs payments to fill in the gaps in your NICs record dating all the way back to 2006. It will cost you £15.85 for every additional week you buy, meaning you could boost your NICs record for a whole year for less than £825.
This could be particularly helpful if you need to boost the amount of State Pension you receive if, for example, you’ve been living abroad for a number of years. The rules change on 5 April 2023 however, as after this, you can only fill gaps going back six tax years.
As you can see, this could significantly reduce the number of years you could buy to fill in gaps in your NICs record, which, in turn, could significantly reduce your State Pension.
6. You can defer your State Pension
A lesser-known fact about the State Pension is that you can defer taking it and boost the amount you later receive. Two months before you reach your State Pension Age, the government will write to you and ask if you want to claim it or defer it.
For every nine weeks that you defer claiming your pension, your weekly payments will increase by 1%. This means that if you are deferring payments for a year you could increase your weekly State Pension payments by 5.8% for the rest of your life.
While this may sound like a good idea, it’s important to speak to a financial planner to consider the long-term potential gain against the immediate loss of not taking it.
Get in touch
If you would like to discuss the State Pension and how it could dovetail into your financial retirement strategy, please contact us on email@example.com or call 01904 655 330. As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high quality service.
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.