Many people dream of the day they can retire. The point they can relax and put their feet up after a hard life of work. The Pensions Act 2014 means that the State Pension Age is regularly reviewed meaning it can change at any time. As things stand the current State Pension Age is 66. However, two further increases have already been laid out in legislation. It will rise to 67 and 68 depending on when you were born.
ONS figures from 2019 showed that 18.1% of the population were of State Pension Age or over. The average lifespan is growing along with population size. This means more and more of the population will rely on a pension in years to come. According to DWP:
"As the number of people over State Pension age increases, due to a growing population and people on average living longer, the government needs to make sure that decisions on how to manage its costs are, robust, fair, and transparent for taxpayers now and in the future."
The life expectancy for males is currently 79 and the life expectancy for females is 82.9. With advancements in technology and medicine, that is likely to increase. Dr Aubrey de Grey co-founder of the SENS Research Foundation has even made an incredible claim:
"I think the first person to live to 1,000 might be 60 already"
Although this is hard to believe, it does underline that many believe life expectancies will go far beyond the current predictions. With so many people heading towards a long retirement it is best to find out how much you actually have in your pension pot.
It is possible to regularly check the forecast of your State Pension. This online government service allows you to find out information about your pension. In particular, you can check the predicted state pension you could get. You can also check when you can get your state pension. Moreover, if you want to increase your pension by making larger payments, you can find out if you can.
You will need a Government Gateway Account and Government Gateway ID to use this service. If you already have an account simply log in to check the progress of your pension.
You can also contact the Future Pension Centre by phone from Monday to Friday, 8am to 5pm. Contact details are:
Telephone: 0800 731 0175
Telephone from outside the UK: +44 (0)191 218 3600
Welsh language telephone: 0800 731 0453
Textphone: 0800 731 0176
Textphone from outside the UK: +44 (0)191 218 2051
Welsh language textphone: 0800 731 0456
Relay UK (if you cannot hear or speak on the phone): 18001 then 0800 731 0175
You can also use a BR19 application form to check your pension forecast by post.
The new pension you receive from the state is based on your National Insurance contributions. The New State Pension has certain criteria that have to be met. For example, a male must be born on 6 April 1951 or after. A female on the other hand must be born on the 6 of April 1953 or any date after.
To receive a pension from the state you will need at least 10 qualifying years paying National Insurance. This also includes if you were receiving National Insurance contributions or paying voluntarily.
If your National Insurance record begins after 6 April 2016 you will now need 35 qualifying years to earn a State Pension.
You must meet certain criteria to earn qualifying years towards your pension. For example, if you are working you must earn at least £190 a week. In the case that you cannot work, you may be given Nation Insurance credits. For example, you can and likely have received qualifying years if you have received:
- Child Benefit
- Jobseeker’s Allowance
- Employment and Support Allowance
- Carer’s Allowance
However, this is why it is important to check your pension forecast as there may be gaps preventing you from receiving the full pension.
Many employers automatically enrol employees in their pension schemes. These workplace pensions mean that you and your employer pay into your pension pot. However, if you switch jobs often, it is easy to lose track of your pension savings. The pension provider should send a yearly letter or email. However, if you change your address and email, you may lose access to this pension pot. In fact, UK workers have lost track of over £19 billion in workplace pensions.
So how do you find your lost pension pot, and how do you recover your pension savings? This depends on the information you have or can remember. Firstly if you remember which pension provider you were enrolled with you should contact them to ask how to access your account.
If you do not remember who the provider was you could contact your previous employer to find out. You could also ask former colleagues. Failing this you could use the Pension Tracing Service. Enter your former employer's name and details of the pension scheme should be revealed. You can also phone the service (0800 731 0193) for help finding your defined contributions pensions.
Pensions freedom legislation was introduced in 2015 which gave people more freedom over their pensions. This was for defined contribution pensions in particular. It means that you do not need to wait until the official retirement age to access your retirement income.
You can take money from your DC retirement pension from the age of 55. You can take a 25% tax-free lump sum from your retirement pot. After this tax-free lump sum, you will have to start withdrawing the rest of your pension income from the pot within six months. The 75% that is left will be liable for Income Tax as pension income. Be wary that as this will raise your annual income, it may push you into a higher tax bracket.
You do not need to take all of the retirement income out as cash. Instead, you could buy an annuity from an insurance company and receive regular payments for life. You could also invest in a Flexi-access drawdown fund which allows you to withdraw money when you need it whilst investing the rest. Contributions over £4,000 will be liable for tax.
You cannot withdraw small sums of cash if:
- Your lifetime allowance is more than £1,073,100
- You have lifetime allowance protection
- You are under the age of 75 and the sums you want to withdraw are bigger than the amount of lifetime allowance you have left
Also contrary to what some people believe, you are still entitled to a state pension if you have a workplace pension also. This is because the state pension is based on National Insurance contributions, not your personal wealth.
To find out how much you are likely going to get from a pension, versus how much you are likely to need, you can use a pension calculator. Instead of just focusing on one pension such as the State Pension, it combines all to give you a figure. This includes; State Pension, New State Pension, defined contribution pensions, and pension income from defined benefits.
A pension calculator will provide information such as:
- Retirement age (State Pension)
- Provide a forecasted retirement income
- Highlight any shortfalls
- Provides a target retirement income
You can also use the results to see if your retirement pensions will allow you to live your desired lifestyle in retirement. If not it will show you how much money in extra contributions you need to make, to earn your desired pension income.
To use a pension calculator simply enter details online. This includes:
- Date of birth
- Target retirement age
- Pension pot information
- What you would like to take as a lump sum
- State Pension Income
Many people dream of the day they can retire. However, the UK population's life span is set to increase with advancements in medicinal technology. The State Pension age will likely rise to reflect this, as it has already.
This means more and more people will look at alternative pension options for any real longevity in retirement. You can check on the progress of your state-paid pension using the government's online service. To do this you will need a Government Gateway Account and Government Gateway ID. This will give you your estimated retirement income and your retirement date. You may also be able to increase your pension by making extra voluntary payments. This service will show you how to do this.
Your state-received pension is paid for out of National Insurance contributions. Prior to 6 April 2016 you will have had to make 10 years' worth of contributions. If your National Insurance records start after this you will need 35 qualifying years. To qualify you must earn at least £190 a week or be given National Insurance credits if you cannot work.
Pension schemes are another way people can save for retirement. Often these pension schemes automatically enroll employees - deducting contributions from wages. However, if you have a history of moving from job to job you may have multiple pensions. It can therefore be easy to lose track of your pensions. and the savings you have accrued.
To find out you could ask previous employers and or work colleagues which pension provider they use. Failing this you can use the Pension Tracing Service to track old pensions you have lost track of.
You can now access your defined contributions pensions from the age of 55. You can withdraw a tax-free amount of 25%. You will then have six months to start withdrawing your remaining pension pot. You do not have to withdraw this in cash you can use:
- An annuity from an insurance company
- A Flexi-access drawdown fund
Withdrawing a large lump sum could push you into a higher tax bracket. Also no matter how much you save in DC pensions you will still receive a pension from the state.
You can also use a pension calculator to show how much pension you have saved. This combines all retirement savings to give you an estimated figure. It will allow you to assess whether or not your savings will let you live the lifestyle you desire in retirement. If not you can adjust the figures to see how much you have to pay in extra voluntary contributions to reach that number. Pensions calculators will ask for personal and financial information before making any calculations.