Retirement just got betterPosted on: 17 March 2010 by Mark O'haire
Pensions are changing, but will you be better or worse off as a result?
Pensions have long been a dirty word for stay-at-home mums and anyone who has given up work to care for a loved one. However, as of next month, that's all about to change. Pensions are finally set to move into the 21st century. But it comes with a downside.
With more of us living longer there's a bigger strain on pension funds; after all someone has to pay for these pensions and that someone is us. So brace yourself, because the overhaul is going to mean some drastic changes.
One of the biggest is that it effectively sounds the death-knell for the swinging 60s. The truth is, in the future, you're more likely to be 70 and still a slave to the daily grind, than 60 and living it up in your twilight years.
First, the bad news
From 6 April the biggest headline-grabbing change affects us all. Over the next decade the age at which you can become a pensioner is going to gradually creep up, from the current 60 to 65 for women, bringing them in line with men.
But it doesn't stop there. Once men and women are equal in their pension age, the limit will start to rise again, slowly but surely, for both men and women, until everyone is working until at least the age of 68 by the year 2046.
So, if you're 30 now you now know that you won't be getting a state pension until you're at least 68. And that's if the age limit hasn't been lifted again by then, which the experts say is highly likely. It's also dependent on there even being a state pension then of course.
Bad news for any 49-year-olds planning to retire soon
Personal pensions are affected by the changes too. From 6 April the minimum retirement age at which you can buy an annuity, or take your tax-free lump sum from your pension fund, is increasing from 50 to 55.
If you're going to be aged between 50 and 55 before this date, then you need to assess your options and quickly. After 6 April you will not be able to take any benefits from your personal pension arrangements until you are 55.
The only exceptions may be if you are unable to work due to ill health, if you're a member of an occupational pension scheme that already has contractual rights to retire early or if you're someone with a special occupation with a lower retirement age, such as a sportsperson.
But if you're unsure whether you fall into any of these categories the only way to find out is to speak to your pension provider.
On the plus side, if you don't want to draw your pension at 55 you can still defer it until your 75th birthday, as before. And other beneficial changes also still stand, such as the ability to take 25% of your pension fund tax-free when you reach 55.
Good news for stay-at-home mums (and dads)
The best bit of news affects, ironically, those who have already left the rat race.
Whether you're a stay-at-home parent or a carer (someone who has given up work to care for a loved one) it will be easier to build up qualifying years of national insurance and get the full state pension.
From April you will need only 30 qualifying years of contributions, rather than the 39 years women currently need and the 44 years men need, to qualify for the full state pension. And it builds up on an incremental basis, so even one qualifying year of national insurance will be recognised, giving at least some basic state pension on retirement, rather than nothing.
It's good news for anyone who chose to give up work to have a family, or had no choice but to give it up to look after a family member, or even for people who have taken time out, to study for example. What it boils down to is that you can have spent 15 years out of the workforce, but still get the full state pension amount.
Parents and carers to get credits
There is also another change to the rules concerning stay-at-home parents and carers. A new weekly national insurance credit available from April will make it possible for an unpaid carer looking after a loved one to build up a full basic state pension based entirely on national insurance credits.
Previously, you needed to be caring for a minimum of 35 hours a week in order to be given credits towards your state pension. From April this will fall to 20 hours a week. For many stay-at-home parents and carers, this will be a welcome development.
Action to take now
If you are in line for these credits then you need to make sure you're getting what you're entitled to. Go to www.direct.gov.uk/pensions or call 0800 678 1132 to check your entitlement and to make sure you're getting the credits you're due. Unfortunately, though this credit only applies to carers who don't do any paid work; anyone working part-time won't qualify.
Women who took time off work to have children from the mid-1970s onwards should also take time now to consider their retirement provision.
It is possible to top-up the national insurance years on your record by working from now to state pension age. You can also boost your pension by putting off drawing your state pension for a few years or you could buy national insurance contributions to fill any gaps in your employment that aren't covered by the new provisions for carers/stay-at-home parents.
Buying an extra six years of voluntary national insurance contributions can boost a pension by as much as £20 a week, experts say. It's not a cheap option, but it could be worth your while.
Good news for ladies hitting 60 from 6 April onwards
If you are a woman who was born on or after 6 April 1950, turning 60 is going to feel pretty good. In fact it could feel a whopping great £25,000 better.
That's because of the change to the rules that means a woman who reaches 60 on 6 April 2010 or later will get a full state pension with just 30 years' national insurance contributions instead of the 39 (44 for men) needed previously.
Pity your sisters who are a little older than you though, because becoming a pensioner is not going to be as financially sweet for them.
A woman who reaches 60 just one day before, with 30 years of national insurance contributions under her belt, will get a state pension of £67.23 - losing more than £20 a week. That reduced pension will cost her on average about £25,000 over the rest of her life.
Action to take
First of all, make sure you know the exact date when you can claim your state pension from, as this is changing for women born on or after 6 April 1950. The state pension calculator on the Directgov website will tell you.
Next, you need to find out how much state pension you have built up by getting your own state pension forecast from the government.
Then, when you know where you stand in terms of state pension provision, you can look at your options. If you continue working past state pension age you won't pay national insurance and will take home more money.
Similarly, delaying drawing your pension could boost your income when you do come to retire. And lastly, if you can afford to you could see about buying extra national insurance contributions. But do this quickly, because on 6 April it's all change.
Good news for same-sex couples and men
Currently, some married women can get an increased basic state pension based on their husband's entitlement. From 6 April, married men and civil partners will also be able to do this.
You won't need to wait until your spouse or partner claims their state pension. To find out whether you're eligible go to www.direct.gov.uk/pensions or call 0800 678 1132.
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