Turmoil, cost of living and pensions
What is happening on the pensions front in the UK this autumn?
I started writing this update on pensions a couple of weeks ago, and much has happened since then. With the arrival of Liz Truss as prime minister and Kwasi Kwarteng as chancellor in the UK, the plan to increase national insurance payments has been scrapped, and we have seen the Bank of England take action to protect defined benefit pensions in a volatile market.
At the same time, the HMRC has reported that pensioners are raiding their pension pots at a record rate as the cost of living rises rapidly. Many are taking advantage of the current pension freedoms allowing people greater access to defined contribution pension pots from the age of 55, with the first 25% tax free. The concern from analysts is that while people have been prudent with their pension pots on the whole so far, this new trend to take out money to cope with rising bills could be difficult to repair later and will affect pensions into later life. Some experts are asking the HMRC to review the way it taxes drawdowns.
So what do you need to know now if your own retirement is looming, or you are already retired?
Will you qualify for a full state pension?
Changes made to the state pension in 2016 are now affecting new pensioners.
Men who were born on or after 6 April 1951 and women born on or after 6 April 1953 and retiring now need at least 10 years of national insurance contributions to qualify, and 35 qualifying years to receive the full state pension. Anyone with less than 10 years of contributions will not receive any state pension. If you’re unsure, you can check your national insurance record.
However, you can plug any gap, and it may be worth buying extra contributions – although it’s possible that you could end up paying for more than you need. Yourmoney.com sets out the guidelines and how to pick the best years to boost your pension.
As of early October 2022, there are question marks over whether thestate pension age will be increased again, so everything continues to be up in the air.
If you have questions, you can contact the Future Pension Centre helpline on 0800 731 0175.
What about that promised triple lock?
Commentators are uncertain what will happen here. Some think it would be politically dangerous to break the promise of a continued triple lock on pensions when many pensioners are Conservative supporters. Others point out that the lock has been broken once, and as the ‘new’ government is talking about cutting benefits, the result could be state pension payments that don’t keep up with inflation.
Beware – cautionary stories
Check that you are in a position to claim the full state pension when the time comes. We see cautionary tales come up from time to time, such as the story of a woman who raised 5 children but doesn’t have enough national insurance contributions because the child benefit was paid to her husband, and they had no idea of the problems this would cause.
What can you do?
If you are likely to be depending on a State Pension, you may find that you need to boost your retirement income by working longer, continuing to work but part-time, or find a ‘side hustle’ that pays enough to fill the gap.
If you have a pension managed on your behalf, it would be a good idea to talk to your adviser and make sure that your money is being protected from high risk.
Anyone already claiming a state pension really should check whether they can claim Pension Credit. At the moment even the smallest payment opens the door to a wide range of cost reductions that can make a valuable difference.
Photo by Sarah Agnew on Unsplash