The state pension is not exactly generous. The basic is £129.20 per week, and the full new State Pension is £168.60 per week if you have a full 35-year record of National insurance contributions.
But generous or not, a regular pension payment from the government is a core element of many people’s retirement planning. The news that some £33million is being taken away from pensions as the Government ends the allowance for adult dependents will come as a shock for those affected.
It also highlights the problem with relying on a state pension.
What is being cut?
Under the old state pension system, those claiming a pension could get a significant extra amount for a spouse.
The Adult Dependency Increase (ADI) allowed a retiree to claim an extra payment for a partner who was financially dependent on them. It tended to be paid to male retirees who provided financially for an unwaged wife who are themselves under state pension age.
It boosted the state pension with an extra benefit worth up to £70 a week – but it will be abolished from 6 April 2020. Some 11,000 people will be affected, each losing over £3,500 per year.
Help could be available
The news has come as a shock to those affected, many of whom assumed that they would simply be able to claim the allowance until their circumstances changed. The Department for Work and Pensions has suggested that when these payments stop, applicants may be eligible to apply for Pension Credit or Universal Credit instead.
If you are one of the 11,000 people affected you should talk to your local pensions office to see how you can make up the shortfall – but for the rest of us the cut comes as a reminder that the state pension simply cannot be relied on to provide of our old age.
We cannot afford to rely on the state to provide for our old age.
This is not a matter of the government being tight-fisted. The number of older people is growing, and we are living longer. The state pension system, which was developed at a time when 70 was a ripe old age and the population was half the size it is now, simply cannot cope.
Most of us will be able to supplement the State Pension with an employer’s pension, but to be comfortable, we will probably need a private or personal pension as well.
A pension can be particularly rewarding because it is tax efficient. The government needs us to save for our old age, so it provides tax relief on the contributions.
This means that putting a small amount away each month can build into a sum that makes a big difference to our retirement finances, especially if we start young.
There are three main types of plan to consider:
- Stakeholder Pension Plans are a low-cost solution. You can stop, start and change contributions as you need to, and your cash will be invested for you by a professional fund manager
- Personal Pension Plans tend to have a minimum contribution of £100 per month, and higher charges than Stakeholder schemes but they give some control over where your money is invested.
- Self-invested Personal Pensions or ‘SIPPs’ let you choose your own investments. You should probably only consider a SIPP if you understand investing and are comfortable managing your own investment portfolio.
What should you do?
Your pension is key to your future, and everyone’s needs are different. Getting the pension plan that is right for you can be easier if you understand all the possibilities.
You can unload our basic guide to tax efficient investing but there is no substitute for individual help from an expert. A call to Continuum could be the easiest way to get the help you need.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of your pension and investments, and the income they produce, can fall as well as rise and you may get back less than you invested.
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