The country is facing a huge deficit thanks to the Covid 19 pandemic. Not only is there a record debt which needs to be paid off, the economic standstill of 2020 has meant that tax revenues are down. The Chancellor, Mr. Sunak needs ways to bring in more revenue without bringing the recovery to a halt.
He may be considering increasing the age at which you can claim your state pension.
At Continuum we are looking at what this might mean to you – and what you can do about it.
State Pensions are a huge cost to the Country
The government is expected to spend approximately £101.2 billion on the state pension in 2020/21, compared with 98.8 billion in the previous financial year. Since 2000/01, UK government spending on state pensions has increased by £62.5 billion.
The costs are increasing year by year. More of us are living to an even riper old age, which means that every year more of us become entitled to start claiming our state pensions.
Things have become a great deal worse because of Covid. Tax revenues fell because of lockdown, while the costs to the treasury increased because of furlough, business loans and supporting the NHS. The result was a huge increase in government debt, making it harder to find the funds required to pay the bill for pensions.
But the problem does not stop there. Since the pandemic, average earnings have seen a huge bounce back of around 8%, with some experts predicting a 10% leap.
The Department for Work and Pensions recently confirmed the State Pension triple lock rule will not be applied for the 2022/23 financial year due to concerns about the potential costs involved.
With wages inflation so high, the triple lock would provide a record increase in the state pension to around £194 a week, costing the Exchequer around £3billion every year hence the decision not to be applied for next year.
Will he increase state pension age?
Increasing state pension age may have a lot of appeal to the Treasury. Not only will it reduce the number of new pensioners, reducing the overall pension bill, it will keep more workers in the workforce for longer, increasing tax revenues.
For both men and women, state pension age is currently 66. It is already scheduled to rise to 67 between 2026 and 2028 and increase again to 68 between 2037 and 2039. Raising it by a year would save the Exchequer £ billions.
It may be less popular with anyone who wants to retire.
What can you do if you want to retire before state pension age?
There is no statutory retirement age. You can decide to retire at any age after you turn 55 if you so wish, but you will need to do so without the support of the state pension as this is only available when you reach state retirement age, whatever that will be.
This may be a little more difficult. You will need to replace a pension income of almost £10,000 a year, but it is perfectly possible if you have enough money from an employer’s pension and in your personal pension pot.
If you don’t already have one, a private pension plan could be the answer. Thanks to the government’s generous tax relief, every pound you put in your pension fund immediately grows even before your fund manager gets to work. It means that your pension may be one of the best investments you could potentially ever make.
A pension review
We can review your current pension arrangements to help you see if your retirement plans are in reach – and find solutions if they are not. Call to book an appointment today.
It’s never too early to start, but there are many pension providers and finding the provider and the plan that is right for you will be much easier with help from a Continuum Advisor. We can help you set up a personal pension plan or review the arrangements that you already have.
It could mean that you have the funds to retire when it suits you, rather than when it suits the Chancellor.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.
Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.