The Times - The State Pension - I wouldn’t count on it.
Jan 11, 2022 16:47:35 GMT
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The state pension? I wouldn’t count on it
Pretending it doesn’t exist could be the best idea
January 9 2022, The Sunday Times
The state pension is a key source of income during your retirement. But even though it has existed for more than a century it could be worth pretending that it may not be there in the future.
While no one in government is talking about the demise of the state pension, there are plenty of younger people who are concerned about its future. It is an expensive benefit, costing roughly £118 billion a year including the winter fuel allowance, pension credit and pensioner housing benefit, and the figure is expected to soar. The Office for National Statistics expects the number of people over state pension age to grow from 12.4 million in 2017 to 16.9 million in 2042.
Under the system that has been in place since 2016 you can get the full new state pension of £179.60 a week, £9,339.20 a year, if you have 35 years of qualifying national insurance (NI) contributions at state pension age. You need ten years of NI contributions to qualify for any state pension at all. If you would have been entitled to more under the pre-2016 state pension system, you will be able to claim that.
The state pension is normally protected by the triple lock, which promises that it will rise every year by 2.5 per cent, average earnings growth or inflation — whichever is highest. Few other sources of income have such a secure link to inflation.
But because of the increase in wages caused by the furlough scheme ending, the earnings growth measure is being ignored for 2022-23, otherwise pensions would have gone up 8.3 per cent. Instead, they will go up 3.1 per cent — the level of the consumer price index at the end of September 2021.
Inflation is expected to peak at or above 6 per cent in 2022, meaning that state pensions will probably rise by more in 2023.
Baroness Altmann, a former pensions minister, said that the temporary double lock set a “dangerous precedent” and that “a chancellor could find it easier to abandon pensioner protection in the future”.
Rebecca O’Connor from the platform Interactive Investor said it would be sensible for anyone not close to pension age to plan for a retirement without a state pension. “That sounds dramatic, but you will be quids-in with a strategy that assumes you won’t get a state pension, or that what you do get won’t be very generous. It means that you can regard any state pension as a bonus.”
The state pension could help to pay for holidays, meals out and other fun expenses. Or you could use it to pay for the essentials and leave your main pension invested so that you could pass some of it on.
The state pension age is 66 but will rise to 67 between 2026 and 2028 and is scheduled to go up to 68 between 2044 and 2046, and this could be brought forward by seven years.
More than a quarter of those aged 45-54 do not know when they are due to get theirs, according to the investment platform Hargreaves Lansdown. One in three aged 55-64 do not know how much state pension they will get.
You may not get the full amount if you opted out of the state second pension under the old system. This meant you would have paid lower NI contributions on the basis that your company pension would make up the difference.
Some 28 per cent of over-65s do not get a full state pension, according to the Department for Work and Pensions. Many will be women who took time out of work to care for children.
Helen Morrissey from Hargreaves Lansdown said: “If you don’t know what state pension you’re due to get, it’s vital to check it online. It’s an opportunity to discover whether there are any gaps, and to take control of your retirement planning.”
If you have gaps in your NI record, you can make voluntary Class 3 contributions. Buying a full year of missing contributions costs about £800, but it will add about £4.80 a week, or £250 a year, to your pension. You can typically only buy NI credit for contributions missed in the past six years.
If you take time out of work to look after children you can get NI credits towards your state pension if you claim child benefit.
If you are over state pension age and on a low income, you could be eligible for pension credit. It tops up your income to £177.10 a week if you are single, or £270.30 for you and a partner.
How to retire before state pension age
The pandemic may have caused millions to rethink their work-life balance, with one in four people now aiming to retire at 60, according to a survey by the insurer Aviva. This means they will have a six-year wait before they get the state pension at 66, during which time they will have to live off other pensions or savings. The state pension age will be 67 by 2028.
Trying to replicate the value of the state pension is a daunting task: a savings pot of £300,000 could be expected to generate a tax-free lump sum of £75,000 and an annual income of £10,000 — slightly more than the full state pension — that would last between the ages of 67 and 90, according to Rebecca O’Connor from the platform Interactive Investor. The average UK private pension pot on retirement is about £70,000. If you want a pot that will give an income equivalent to the state pension between the ages of 60 and 66, you will need about £60,000 to £70,000.
Taking income from a portfolio of high-yielding company shares, or investment trusts that invest in high-yielding company shares, is the best way to produce a regular income, said Doug Brodie from the retirement planner Chancery Lane.
“The FTSE 100 has never failed to produce an income,” Brodie said. “If you own investment assets and you never sell those assets, you’ll never run out of money.”
Another way to fill the gap between early retirement and your first state pension payment could be an annuity, which provides a guaranteed income over a set period in exchange for a lump sum payment, said Rebecca Williams from Brown Shipley, a private bank.
Pretending it doesn’t exist could be the best idea
January 9 2022, The Sunday Times
The state pension is a key source of income during your retirement. But even though it has existed for more than a century it could be worth pretending that it may not be there in the future.
While no one in government is talking about the demise of the state pension, there are plenty of younger people who are concerned about its future. It is an expensive benefit, costing roughly £118 billion a year including the winter fuel allowance, pension credit and pensioner housing benefit, and the figure is expected to soar. The Office for National Statistics expects the number of people over state pension age to grow from 12.4 million in 2017 to 16.9 million in 2042.
Under the system that has been in place since 2016 you can get the full new state pension of £179.60 a week, £9,339.20 a year, if you have 35 years of qualifying national insurance (NI) contributions at state pension age. You need ten years of NI contributions to qualify for any state pension at all. If you would have been entitled to more under the pre-2016 state pension system, you will be able to claim that.
The state pension is normally protected by the triple lock, which promises that it will rise every year by 2.5 per cent, average earnings growth or inflation — whichever is highest. Few other sources of income have such a secure link to inflation.
But because of the increase in wages caused by the furlough scheme ending, the earnings growth measure is being ignored for 2022-23, otherwise pensions would have gone up 8.3 per cent. Instead, they will go up 3.1 per cent — the level of the consumer price index at the end of September 2021.
Inflation is expected to peak at or above 6 per cent in 2022, meaning that state pensions will probably rise by more in 2023.
Baroness Altmann, a former pensions minister, said that the temporary double lock set a “dangerous precedent” and that “a chancellor could find it easier to abandon pensioner protection in the future”.
Rebecca O’Connor from the platform Interactive Investor said it would be sensible for anyone not close to pension age to plan for a retirement without a state pension. “That sounds dramatic, but you will be quids-in with a strategy that assumes you won’t get a state pension, or that what you do get won’t be very generous. It means that you can regard any state pension as a bonus.”
The state pension could help to pay for holidays, meals out and other fun expenses. Or you could use it to pay for the essentials and leave your main pension invested so that you could pass some of it on.
The state pension age is 66 but will rise to 67 between 2026 and 2028 and is scheduled to go up to 68 between 2044 and 2046, and this could be brought forward by seven years.
More than a quarter of those aged 45-54 do not know when they are due to get theirs, according to the investment platform Hargreaves Lansdown. One in three aged 55-64 do not know how much state pension they will get.
You may not get the full amount if you opted out of the state second pension under the old system. This meant you would have paid lower NI contributions on the basis that your company pension would make up the difference.
Some 28 per cent of over-65s do not get a full state pension, according to the Department for Work and Pensions. Many will be women who took time out of work to care for children.
Helen Morrissey from Hargreaves Lansdown said: “If you don’t know what state pension you’re due to get, it’s vital to check it online. It’s an opportunity to discover whether there are any gaps, and to take control of your retirement planning.”
If you have gaps in your NI record, you can make voluntary Class 3 contributions. Buying a full year of missing contributions costs about £800, but it will add about £4.80 a week, or £250 a year, to your pension. You can typically only buy NI credit for contributions missed in the past six years.
If you take time out of work to look after children you can get NI credits towards your state pension if you claim child benefit.
If you are over state pension age and on a low income, you could be eligible for pension credit. It tops up your income to £177.10 a week if you are single, or £270.30 for you and a partner.
How to retire before state pension age
The pandemic may have caused millions to rethink their work-life balance, with one in four people now aiming to retire at 60, according to a survey by the insurer Aviva. This means they will have a six-year wait before they get the state pension at 66, during which time they will have to live off other pensions or savings. The state pension age will be 67 by 2028.
Trying to replicate the value of the state pension is a daunting task: a savings pot of £300,000 could be expected to generate a tax-free lump sum of £75,000 and an annual income of £10,000 — slightly more than the full state pension — that would last between the ages of 67 and 90, according to Rebecca O’Connor from the platform Interactive Investor. The average UK private pension pot on retirement is about £70,000. If you want a pot that will give an income equivalent to the state pension between the ages of 60 and 66, you will need about £60,000 to £70,000.
Taking income from a portfolio of high-yielding company shares, or investment trusts that invest in high-yielding company shares, is the best way to produce a regular income, said Doug Brodie from the retirement planner Chancery Lane.
“The FTSE 100 has never failed to produce an income,” Brodie said. “If you own investment assets and you never sell those assets, you’ll never run out of money.”
Another way to fill the gap between early retirement and your first state pension payment could be an annuity, which provides a guaranteed income over a set period in exchange for a lump sum payment, said Rebecca Williams from Brown Shipley, a private bank.