Changes in the State Pension

As you may be aware there have been many recent changes to the legislation surrounding State pension both in respect of the number of years’ contributions that are required for full entitlement and also the age at which it can begin to be paid.

The current age is 60 for a woman and 65 for a man. However, from 2010 the qualifying age for women will be gradually increased until it also reaches 65 in 2020. The new State pension age for women born after 5 April 1955 will be 65.

Further changes will be introduced from April 2024 when the State pension age for everyone born after 5 April 1959 will increase in stages until it reaches 68 in April 2046.

Planning for retirement

Although your State pension is not necessarily going to provide an adequate income for your future retirement, it would still be to your advantage to learn what the current value of your expected pension might be. The results may also help you to decide whether you need to consider making or increasing contributions into a Private pension plan to boost your income at a later date.

Another point to consider when planning for the future is whether you have ever opted to contract out of SERPS or S2P as it is now known. This is the State Second Pension scheme which allows you to build up an additional State pension depending on how much you earn and how much Class 1 National Insurance Contributions you pay.

By choosing to contract out of this scheme the government then pays you a rebate each year which must then be invested with a pension or insurance company or, into a company pension scheme.

It would be impossible to predict absolutely the best course of action but roughly speaking there are three main factors:-

  1. Your age
    The younger you are the longer your invested rebates have to grow. As a guide contracting out becomes less attractive at around 45.  
  2. Your salary
    The more you earn the more attractive it is to contract out. Therefore, lower paid earners, carers etc, will benefit from remaining in S2P.   
  3. Future returns
    It is likely that in order to maximise your returns the private pension provider will invest in stocks and shares. If you are not comfortable with the risk involved you may prefer not to opt out.

Any decision made to contract out should be reviewed every few years in any case. Please also bear in mind that if you have ever contracted out you will remain so until you elect otherwise regardless of whether your circumstances have changed and it is no longer in your best interest to do so.

Pension forecast

It is advisable to obtain a State pension forecast, particularly if you are in over 40 or you have taken time out of work to raise children or care for parents.

A pension forecast will tell you if there have been any gaps in your contributions and whether you can do anything to improve your basic pension. If you would like any assistance with this we could complete the forms on your behalf and ask the Pension agency to send the results direct to us for review. The results should give a clear indication of whether you feel you will be adequately prepared for retirement and give you some idea of the standard of living you may enjoy.

You may want to take steps to start making provisions to top up your retirement income level. In this case, you will need specialist pension advice and we would be happy to facilitate discussions with a specialist provider.

It may be that you have already done this but, if you have any concerns regarding your future level of income, we would strongly recommend that you make further enquiries sooner rather than later.