For the first time in nearly 100 years, the state pension age has increased beyond 65 to 66 years old. Changes to the state pension can prove to be an emotive subject for the electorate, and no wonder. Here are ten reasons why it remains such a valuable national institution.
1. The first state pension was paid in 1909 to half a million 70-year-olds. Back then, only 1 in 4 people reached the age of 70. They received 25p a week, which is the equivalent of £26 in today’s money.
2. Today, the average life expectancy of a man is 80 and a woman is 84 and the UK currently has over 12 million people age 65 or over. The state pension costs the country nearly £100 billion a year.
3. Those reaching state pension age today need to have at least 35 years of qualifying national insurance payments to receive the full state pension, which is £175.20 per week or £9,110.40 a year. And you need to have at least 10 years of national insurance payments to qualify for any state pension at all.
4. In 1940, the state pension age for women was lowered to 60, but in 2010 it started rising again. It is now 66 – the same as for a man. At current rates, that means women retiring today are approximately £54,000 worse off than those who retired ten years ago.
5. If the state pension didn’t exist, you would need to save more than £190,000 into a private pension to receive the same income each year from the age of 65 (based on a single life, non-escalating annuity, October 2020). And that amount would not increase with inflation.
6. You can check how much state pension you are forecast to get by visiting www.gov.uk/check-state-pension. If you don’t qualify for the full state pension, this can be boosted by applying for National Insurance credits and/or by paying voluntary contributions.
7. The government currently guarantees to raise the state pension each year in line with either average earnings, prices (as measured by inflation) or 2.5% - whichever is higher. These three measures are called “triple lock”. Next year the rise will be the minimum 2.5%, as both earnings and prices have been depressed due to the pandemic.
8. Currently, it is planned for the state pension age to increase from 67 to 68 between 2044 and 2046, but that is likely to be brought forward. For people currently under 30 years of age, it is forecast their pension age will be 70 years old. You can check what your own state pension age is likely to be by visiting www.gov.uk/state-pension-age although this may change in the future.
9. You can defer taking your state pension, which means you will be paid more when you decide to retire.
10. If you retire abroad, you can still claim your state pension.
While it’s easy to knock the state pension, it is a good safety net for those in retirement. Even for those with good retirement provision, the state pension offers a solid base from which to pay everyday essential expenses. We always account for it when helping our clients plan for retirement.