Many of us look forward to the time when work is done and life can be taken at a more leisurely pace and while some may have private or workplace pensions, receiving the state pension will be an important part of any financial planning for retirement.
There have been quite a lot of changes to the pension age recently and many people are unsure about their pension age, so we have summarised the key facts in this month’s blog post. A new state pension scheme was introduced in 2016 which is currently used as the deadline to calculate National Insurance payments and for the purposes of this blog, we are assuming people have either retired after that date or have not yet reached retirement age.
Individuals can check their retirement age here.
History of the state pension
The state pension was first introduced in January 1909 and paid 5 Shillings a week to very poor people aged 70 or more. Soon, the age of eligibility was reduced to 65 for men and 60 for women although since 2010, the age for women has been gradually harmonising with the age for men so that in 2018 the age for both was 65.
Today’s pension age
The pension age today is 66 years for both men and women and the full state pension is £203.85 per week. This is based on having paid National Insurance for the maximum of 35 years up to 2016 although the calculations can be quite complex and adjusted to take into account the years after 2016; the state pension is paid proportionally if the full 35 years hasn’t been reached.
Getting your state pension
The state pension isn’t paid automatically but has to be claimed for. This is a relatively straightforward process; about 4 months before your 66th birthday, a letter will be sent giving information about the pension and will include an ‘invitation code’ which can be used in the online application.
Assuming the claim has been made, the first payment is made within 5 weeks of reaching State Pension age and then there’ll be a full payment every 4 weeks after that.
If a 66 year old is still in employment and has no plans to retire, claiming the state pension can be deferred and this will mean payments later when the pension is eventually claimed will be higher.
Other income after retirement
Many pensioners will have other pension pots, especially as those who have been auto-enrolled in workplace schemes reach retirement age. But there is also no reason why pensioners can’t remain in the workforce. Employers cannot force employees to retire and receiving a salary and pension at the same time is allowed. The only difference is that once the state pension is being claimed, national insurance payments do not need to be made although of course all income will still be subject to taxation.
The future of the state pension
The state pension age is expected to rise to 67 in 2028 and there will be a review in the next parliament as to whether the age needs to rise to 68.
Whilst here at Pixie Payroll we are not experts at pension planning for individuals, we can help employers deal with the changes to payroll due to an employee reaching pension age whether they are retiring or staying in work for a while. Just get in touch if you need any help.