Will I Get a State Pension?
The State Pension regime has gone through massive reform in recent years and the changes will have an impact on how much pension you are entitled to and when you can start to receive it. This will therefore affect how you plan for your retirement.
In April 2016 the Government introduced a new flat rate State Pension, that will be applicable to everyone, but not everyone will get the full amount and it will depend on your own National Insurance (NI) record.
For the current year (from April 2019) the rate increased to £168.60 per week, based on you having paid or having a credit for 35 years of NI contributions.
It is worth noting that some people will still have their State Pension protected under the old rules if they’ve build up more entitlement over the years, as the new roles are not retrospective, so there is some transition for people retiring now.
If you do have any gaps in your NI history, it is possible to make additional voluntary contributions to top this up (known as Class 3 NI contributions). Some benefits will still give you the credit you need such as jobseekers allowance and claiming child benefit so just because you weren’t working doesn’t mean you won’t get NI credits. This is why we recommend that all parents register for child benefit even if they don’t claim it (because they would otherwise have to pay it back as a high earner earning over £50k-see rules) so they still get their entitlement to the NI credit. If you’re working or self-employed you will continue to pay NI until your state retirement age, albeit there are some transitional rules for older people. When you are employed you pay Class 1 NI contributions and when you’re self-employed you will pay Class 2 NI contributions. Unfortunately Class 4 contributions do not contribute to your state pension, as they’re effectively a tax, and that’s a topic for another discussion.
If you think you are short, you can check your NI record or you can request a State Pension forecast here
The current age threshold is 65, which is the same for men and women and it is planned to rise to 66 from October 2020, rising again to 67 from 2026.
There is some discussion that the age threshold will rise sooner and could be raised to age 75, so be prepared to work longer or fund your own retirement if you intend on retiring sooner, in case of any changes.
Even if the age threshold remains as planned, it is unlikely to give you the lifestyle you would desire, so you should be looking to supplement your retirement with other income. Bear in mind that the State Pension is taxable (even though it will not be subject to NI when you retire), so consider this when planning your future cashflow.
You can of course make pension contributions into a private or workplace scheme and there are a variety of types for you to consider, from low risk managed funds to a Self Invested Personal Pension (SIPP) that holds investments until you retire. We would always recommend taking advice from an Independent Financial Advisor. Personal pension contributions would give you tax relief as the Government put 20% in to it too and you will get more tax relief if you are a higher rate taxpayer. Alternatively if you run a limited company business your company could make contributions for you. The personal pension rules are vast and you can click here to read more.
Many people have their own ideas about private pensions but there are many ways to be prepared for retirement, whether this is through making other forms of investments such as ISAa, or expanding a property investment portfolio. Whatever your plan, start as soon as you can and take advice where you need it.
There is a UK helpline available and you can get loads of free digital advice here if you want more information about pensions
FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment and professional services. Our clients vary in size from self employed sole traders, small enterprises and medium size businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.