The government has recently announced it is reviewing the State Pension Age (SPA). As a result, the Department of Work and Pensions (DWP) could decide to raise the age at which you can claim your State Pension earlier than is currently planned.
If the increase happens, it could delay retirement for millions of Britons. Read on to find out what raising the SPA could mean for you, and what you could do to ensure you can retire at your target age, regardless of an increase.
Currently, the State Pension Age will raise from 66 to 68 in 2046
In 2022, the SPA for both men and women is 66. That said, there are two increases set out in legislation that will see the age increase to 67 by 2028 and 68 by 2046. If you are in any doubt about your SPA, you can use the government State Pension calculator, which will tell you when you’ll be eligible to claim the State Pension .
The Pensions Act 2014 requires the government to regularly review the SPA, and it has said it wants to review the current ages because of the latest life expectancy data. According to FTAdviser, the review may prompt the government to increase the SPA to 68 from 2037 – nine years earlier than currently planned.
This could affect you and your retirement plans if you were born in the early 1970s. To understand why, we need to look at the critical role the State Pension plays for many retirees.
The State Pension underpins many people’s retirement income
In the 2021/22 tax year, the full new State Pension is £179.60 a week, or £9,339.20 a year. To receive this full amount, you’ll need 35 “qualifying years” on your National Insurance record.
If you don’t have 35 qualifying years you could receive a reduced amount, although a financial planner could explain how you may boost it.
As you can see, the State Pension could significantly boost the income received when you retire, and could help provide the lifestyle you want in retirement. As such, it might mean the difference between being able to retire or not.
If the DWP increases the SPA, your personal or workplace pension may have to provide additional income to cover the period during which you cannot claim your State Pension. This might mean your pension runs out later on in life.
You could keep your retirement on track if you act now
If the State Pension is part of your retirement income, a government decision to increase the SPA may mean you have to delay your retirement. That said, there could be actions you can take to boost your pension pot and allow you to take additional income to cover the period you cannot claim your State Pension.
As a result, you may be able to retire at your target age, and not have to delay it until you reach SPA.
Increase contributions
Increasing your pension contributions may provide a significant boost to your pension pot, providing the additional income you’ll need to replace the State Pension. Remember, the additional contributions will typically receive tax relief, giving your contributions an additional uplift.
Reassess your lifestyle
A financial planner can help you assess the income you will need in retirement, and ways you may adjust your spending to allow you to retire at your target age.
Adjust your pension’s risk profile
While too much risk can be harmful to your pension, so can too little risk. A financial planner can assess your pension and ensure it’s exposed to a level of risk that provides the greatest growth potential, while remaining appropriate to your circumstances.
Rebalance
Your pension has investment funds that, over time, can grow or diminish. This could alter the potential growth of your pension and level of risk it’s exposed to, so resetting your pension could help maximise growth potential.
Always speak to a financial planner if you are considering this, as they can confirm whether you need to rebalance your pension and what the best option might be.
Consolidate
You may want to consider merging your pensions as it could increase growth potential and reduce charges. That said, great care should always be taken, so always speak with a financial planner to ensure it’s right for you, and that you won’t lose benefits with your existing pensions you’d probably rather keep.
Get in touch
If you would like to speak to the team at Ardent about your retirement plans and pension, and whether an increase in the SPA could affect you, email hello@ardentuk.com or call 01904 655 330.
As award-winning specialists in financial planning, we’ll create a financial strategy that helps you meet your long-term goals. Working together with you, we’ll provide options that could help you look forward to a brighter future and give you peace of mind that you’re financially secure.
Please note
This article is for information only. 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.
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.
