The state pension age is evidence that the past was indeed a simpler time. For many decades the state pension was paid to men from age 65 and to women from 60. In the last few years we have seen a swathe of changes – and there looks to be more to come.
The first was the plan to equalise the state pension age for both men and women at 65 before 2020. This has since been brought forward to 2018 which will result in some women born in the mid-1950s having to wait an extra two years. That doesn’t leave a lot of time to try to make up for the lost income.
Once equalisation has been achieved, the plan was to push the state pension age back to 66 by April 2020, to 67 in the mid-2030s and to 68 in the mid 2040s. However this week came news that this was considered far too slow. It now looks like the government is planning to knock a decade off that timing, bringing it to 67 as early as 2026.
In truth the government is desperately trying to get ahead of the curve. In the last century, longevity had leapt ahead but the state pension age for men has remained 65. Retirement, from being a brief few years, is now an extended part of life potentially lasting decades. Those extra years can be very expensive.
These kind of changes make retirement planning more difficult. I wouldn’t recommend anyone to try to live on the state pension – currently £102.15 per week – but it is a useful sum of money to supplement other income. During your working life you would need to save a fund of around £120,000 in order to generate that kind of income in retirement.
Going forward it will provide the basis for many people using new ‘flexible drawdown’ rules that allow those with secured pension income of at least £20,000 a year to avoid the strict limits on how much they can take from their remaining pension funds.
One of the less talked about changes to the state pension is the ability to defer taking it for a period of time, either before you take it or while it is in payment. Those who defer for a period can then be paid a higher weekly state pension for the rest of their lives. Anyone deferring for at least a year has the choice of taking the pension missed as a one-off lump sum.
These options can work well because the returns the government offers for deferment can be quite attractive. For extra pension, the pension is increased by 1 per cent for every five weeks of deferral so that deferring for one year would boost the pension paid (for the rest of your life) by just over 10 per cent. For lump sums, interest is paid at a rate of 2 per cent above the Bank of England base rate which is at a record low of 0.5 per cent at present although could rise in future.
For anyone keen to find out at what age they might be eligible for state pension, there is a handy calculator at http://pensions-service.direct.gov.uk/en/state-pension-age-calculator/home.asp Just bear in mind that any date could be brought forward in the future.