6th April 2016
With the new single-tier State Pension of £155.65 being introduced, Maike Currie, Investment Director for Personal Investing at Fidelity International looks at the winners and losers and examines what people can do if they think they are impacted.
From 6 April 2016, the state pension system sees a major overhaul, with a new single-tier pension of £155.65 per week.
The rules that apply to you are set by your date of birth. All men born after 6 April 1951 and all women born after 6 April 1953 will reach their State pension age after 6 April 2016 and retire under the new rules. The difference between retirement before or after 6 April 2016 could have a significant impact on your State pension, in extreme cases a few thousand pounds.
The years of national insurance contributions or credits needed to qualify for the full basic state station will rise from 30 to 35 years under the new system, with anyone showing less than 10 years on their NI record not getting any pension at all.
Winners and losers
However, this has been undone by separate changes to the women’s state pension age, which is rising from nearly 63 now to 65 by 2018. This means only 80,000 women will receive the new flat-rate state pension from 2016 to 2018, compared with 390,000 men, according to figures by the Department for Work and Pensions.
What can you do?
Those in retirement – if you can afford to, there is a chance to plug gaps in your NI record, and so give your state pension a boost. Men over the age of 65 and women over the age of 63, can top up their state pension to a maximum of £1,300 a year or £25 extra a week, in return for a one-off payment. The offer is open to anyone who reaches state pension age today and will remain open for qualifying people until April 2017.
This is a valuable option. A man aged 65 today would need a fund of around £25,000 to provide a level annual annuity of £1,300 a year – and a fund of around £43,000 to provide £1,300 a year increasing in line with inflation up to a max of 5%.
For a woman aged 63 today, this would need a fund of around £26,000 to provide a level annuity of £1,300 a year and £46,000 to provide £1,300 a year increasing in line with inflation up to 5%
Younger workers – young people have that precious commodity of time being on your side. Make sure you have a rainy day fund set up. An individual savings account (ISA) is a good way to shelter some savings away from the taxman. Also take advantage of your workplace pension offering from your employer with matching contributions or consider setting up your own pension pot or LISA when it is introduced. Even if you can only afford to put a tiny amount away each month – do this regularly and it could make all the difference to ensuring a dignified retirement