Chapters Financial News

There is much press about the State Pension, with some being controversial and some positive, such as the planned uplift next year of the full new State Pension by £460 pa under the current triple-lock arrangements from the next tax year 2025/2026. Remember, we have a Budget on 30 October, so things could change.

Perhaps one of the important points is the income being paid at the moment for a full entitlement to the new State Pension, which is £11,502 pa (paid gross, but taxable). Not an insignificant amount, but perhaps one of the questions you might have is, when do you start receiving it?

The State Pension age for men and women rose to 66 between 2018 and 2020. Following this, the Pensions Act 2014 brought forward the increase to 67 to between 2026 and 2028.

It is proposed that the State Pension age (SPA) will then rise to 68 by 2044-2046, meaning that those born after April 1977 will be affected.

Independent periodic reviews of the SPA are held each parliament. The first periodic review, which took place between 2016 and 2017, recommended a rise in the SPA to 68 be brought forward to between 2037 to 2039. This would affect those born between April 1970 and April 1978.

The second periodic review (2021-2023) concluded that the rise to age 68 should take place between 2041 and 2043. Further details (and some interesting background to the recommendations) may be found here: https://commonslibrary.parliament.uk/research-briefings/sn06546/

The then government did not adopt either recommendation. The timing of the rise of the SPA to 68 therefore remains in doubt and will be investigated by a further independent review over the course of this parliament.

With a new government now in power and clearly keen to make significant savings, the SPA may well reappear on the legislative agenda.

The unaffordability for the UK government of the State Pension has long been a topic of discussion and continues to be so. The International Longevity Centre's Healthy Ageing and Prevention Index noted earlier this year that the UK (and other ageing populations) would need to increase SPA to 71 by 2050 for the benefit to remain affordable, in great part because of the rapidly ageing population and the decline in the number of workers per retiree. Further details may be found here: https://ilcuk.org.uk/ageing-populations-forced-to-increase-state-pension-age-to-71-by-2050-to-maintain-dependency-ratio/

Whilst there are no guarantees of change to the SPA, it is important that any changes that do occur are built into retirement planning as early as possible. For many people, the State Pension is the backbone of their retirement income, and a delay in this income stream coming into payment may result in 'gap years' that need to be financed.

Bear in mind, too, that the minimum age at which individuals are allowed to access private / company pension benefits is rising from the current age of 55 to 57 from 06 April 2028 under current legislation. This means that people born on or after 06 April 1973 will not be able to access pension savings until age 57, unless under very limited circumstances.

Whatever happens to the SPA, it's always sensible to check that your entitlement to the State Pension is correct and funded to the maximum where possible. This can be achieved through your Government Gateway account or through a paper form if that's easier: https://www.gov.uk/check-state-pension

Many clients find that they have various sources of income in retirement, and it is a combination of sources (including the State Pension), rather than a single source of income, that provides the overall funds needed. If you would like to discuss your pension planning, we are here to help and we look forward to hearing from you.

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No individual advice is provided during the course of this blog.

Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner

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