Millions of workers could face having to work longer under plans to bring the rise in state pension age forward – a move that would affect people in their early fifties the most.
Currently, the state pension age is due to rise to 67 by April 2028, then gradually to 68, with legislation saying the rise would be phased in between April 2044 and 2046.
However, reports today have suggested the Treasury told the Office for Budget Responsibility (OBR) it is looking to bring this rise forward to 2037.
This would mean around five million workers aged 49 to 55 would have to work an extra year before being able to claim their state pension, costing them around £12,500.
The state pension age, which is currently 66, has been under review since last year with ministers set to examine whether or not it should rise before 2044.
The Treasury said no decision has been made. A spokesperson said: “The state pension age review is currently under way and we cannot pre-empt the outcome.”
The full new state pension is worth £241.30 per week – £12,547.6 per year whilst the basic rate is £184.90 per week – £9,614.8 per year.
From next April, the full rate of the new state pension will exceed the threshold at which people pay income tax, which is frozen at £12,570 until 2030.
The i Paper spoke to experts to understand what people can do now to mitigate the rise in state pension age if it is brought forward.
What to do to mitigate any changes to the state pension age – and your pension savings
Build up a private pension
Brian Byrnes, director of personal finance at Moneybox, said it was vital to build up a private pension to ensure you have financial stability as state pension policy can change at any time.
He said: “For the five million people aged between 49 and 55 who could potentially be affected, there is some reassurance in that these can often be your peak earning years.
“If it’s affordable, increasing pension contributions by just one or two percentage points now could make a meaningful difference by the time you retire, especially when tax relief and employer contributions are factored in.”
Retraining in later life
Steve Webb, former pensioners minister and partner at pension consultancy LCP, suggested that in some cases it can be sensible to look at moving out of work that is physically demanding and retraining for jobs where it will be easier to keep working into your late sixties.
Doing so can ensure you’re earning for longer, without compromising your health.
He said: “We probably all need to do more to look after our health, as poor health is one of the main reasons why people can find themselves dropping out of the labour force in their late fifties or early sixties.”
Find old pension pots
Tracking down and consolidating old pension pots will make it easier to see how much you have saved and how much more you may need in later life.
You can use the government’s pension tracing service to find old pension pots you think you may have. Alternatively some pension providers have also launched their own pension tracing services.
Check if you can claim extra pension tax relief
Pension contributions receive tax relief from the government. The level of tax relief you get is based on the rate of income tax you pay.
For example, if you are a basic rate taxpayer – 20 per cent – you get 20 per cent tax relief, meaning you only need to pay £80 of your salary towards your pension and you will get £100 going in.
There are limits on the amount you can pay into your pension and receive tax relief on. Broadly, your personal contributions are limited to 100 per cent of your earnings whilst there is another limit of £60,000 that includes your contributions, any employer’s contribution, and tax relief.
Maximise employer contributions
Under auto-enrolment there must be a minimum contribution of 8 per cent. Employers must pay in 3 per cent of your pensionable pay into retirement savings, whilst you pay 5 per cent.
Many employers offer “matching”, where it pays more if you also agree to pay more. If this is the case it’s worth considering.
Keep an eye on your investments
Claire Trott, head of advice at St James’s Place, said it’s worth seeing if your money might be better in an alternative fund to the default choice.
“Defaults are there as a backstop to ensure the money in your pension doesn’t just sit in cash. You have an option to change your investment preference based on your own needs or values.”
Keep your pension invested
If you are planning to use your pension pot to take out several lump sums or to draw income flexibly from it – known as income drawdown – then it is important to think about what to do with what is left.
Your provider will ask you how you want to invest what is remaining in your pot and you can choose which investments you want your money to go into based on your attitude to risk and any plans you have. Some providers will have ready-made investment options for you to pick from.
How much you need for a comfortable retirement
Pension UK’s Retirement Living Standards provide a general gauge of how much people need to save for retirement, based on the lifestyle they want.
It suggests that for a comfortable retirement – where someone has a two-week holiday abroad each year, a car, and eats out each month – a single person would need £45,400 a year and a couple would need £67,200.
It falls to £13,900 for a “minimum” retirement as a single person or £22,500 for a couple.
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