Major changes to the state pension are taking effect right now
Concerns have been raised about the prospect of moving the state pension age up to 69. An expert warns people could be “forced to work longer” if the rules change.
The future of the state pension has been put in the spotlight after Prime Minister Andy Burnham announced that the triple lock will be changed. From 2030, the average earnings part of the policy will be removed, although Labour says that the yearly increase will still keep track with earnings over time. The triple lock ensures the state pension rises each April in line with the highest of 2.5 per cent, the rise in average earnings or inflation.
State pension age at 69
Another way the Government could save costs on the state pension is by making people wait longer to claim it. The state pension age is currently moving up from 66 to 67, going up gradually between April 2026 and April 2028.
Plans are also in place to move it up from 67 to 68, between April 2044 and April 2046. Hannah Martin, pensions expert and founder of Rich Retiree, spoke about if there could be further increases.
She said: “They could look at increasing the state pension age further, possibly to 69. However, this will disproportionately impact people with poorer health, people with physically demanding jobs and lower-income workers with smaller workplace pensions.
“They could find themselves forced to work longer than they wish or are able, and may end up with fewer retirement years.” She also mused on the question as to whether the Government could increase the number of National Insurance years you need to accrue to get the full state pension.
Disproportionate effect
The full new state pension currently pays £241.30 a week, or just under £12,550 a year. You typically need to pay in 35 years of National Insurance contributions to get this. Ms Martin said she is not sure such a move would be realistic.
She explained: “Again, this will disproportionately affect people with caring responsibilities, freelancers and people who, through no fault of their own, find themselves out of work for periods of time or work part-time. It could also influence decisions, such as pursuing higher education opportunities.
“It’s likely to be people with fewer financial resources who feel the impact from this the most.” One thing the pensions expert is sure of is that we need better financial awareness in the UK when it comes to pensions and our retirement plans.
Too many are unaware
Ms Martin said: “There needs to be greater education in pensions in general. Too many people are unaware of how much state pension they will receive and when, whether they have enough National Insurance contributions to qualify for the full pension and if not, whether it’s worth buying voluntary National Insurance year.”
She also encouraged people of all to be paying into their pensions. The expert said: “We have little control over decisions the Government makes about the state pension, but we can ensure that we have enough to cover the lifestyle we want by taking action ourselves.
“Thanks to a combination of tax relief and compound growth, every £1 you invest in your pension has the potential to work hard for your retirement. Even someone in their 50s or 60s still has time to make a difference to their pension pot if they make it a priority.”
