What You Need to Know About Rising State Pension Age.

Key points:

  • State Pension Age Increasing: The state pension age is rising and could reach 70, 75, or even higher, based on longevity reviews. This means you’ll have to wait longer to receive your state pension.
  • Private Pension Concerns: A recent report highlighted “critical problems” in private pension schemes, with many people not saving enough for a decent retirement. The system is described as complex, costly, and inefficient.
  • Importance of Personal Pension Planning: With the increasing state pension age and concerns about private pensions, it’s more crucial than ever to plan for your retirement. Personal pensions offer flexibility and can supplement the state pension.
  • Seek Financial Advice: Navigating the changing pension landscape can be complex. Independent financial advice is essential to make informed decisions about your retirement savings.

Current position

Investors may be pleased that they no longer have to purchase an annuity with their pension fund by age 75. However, the news that the state pension age is set to rise significantly is less welcome.

Following the Pensions Commission’s recommendations, the Pensions Act 2007 legislated to increase the State Pension age for both men and women to 66 between 2024 and 2026, 67 between 2034 and 2036, and 68 between 2044 and 2046.

 As life expectancy rises, so will the age at which individuals can claim their state pension. This means 66 could become 70, 75, or even older.

This news, coupled with a recent report by Lord McFall of Alcluith, former chairman of the Treasury select committee, paints a concerning picture for those relying on either state or private pensions.

Lord McFall’s report warned that the UK’s pension system needs improvement ” urgently ” if millions of private-sector workers are to save enough for retirement. He highlighted “critical problems” in private firms, stating that too many people are stuck in a “complex, costly, and inefficient system” and simply aren’t saving enough.

He warned of potential poverty in retirement if people don’t get “more bang for their buck” from their pensions and expressed alarm at the “complacency of many in the pensions industry.”

Read the FAQ on the new State Pension

Read the Government 2023 review

The Need for Advice and Guidance

These developments underscore the increasing need for professional financial advice.

Understanding the changing landscape and making informed decisions about your retirement savings is more crucial than ever.

A Historical Perspective & The Importance of Personal Provision

While the current system has its challenges, it’s worth noting that the concept of a state pension has evolved.

Introduced by Lloyd George in 1909, the Old Age pension was designed for those aged 70 and over, an age few were expected to reach. Even then, personal provision was essential, as the benefit level was deliberately low to encourage individual savings.

Today, while helpful, the basic state pension is not enough to live on comfortably.

It’s crucial to supplement it with adequate private provision, either through an employer’s scheme or a personal pension. The government’s introduction of Auto Enrolment aims to facilitate this, although opting out is possible.

Taking Control of Your Retirement

The rising state pension age means many must work longer than anticipated. A key advantage of private pensions is their flexibility.

You can access your private pension when you choose to retire, not when the government dictates.

By effectively managing your retirement plans, the state pension can become a supplementary income. Your primary retirement benefits will come from your own (or employer’s) pension plan.

Don’t delay! Seek independent financial advice today to secure your financial future.