Find out about retirement and state pensions.
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Retirement: an introduction
For many years the UK state pension age has been 65 for men and 60 for women, with employers allowed to operate a default retirement age preventing employees from working past 65. However, this default retirement age has been abolished and state pension ages were equalised at 65 in November 2018 and are scheduled to increase to 66 by October 2020.
You can only receive your state pension when you reach your state pension age.
The default retirement age was abolished on 1 October 2011 meaning that fixed retirement ages from employment are a thing of the past, encouraging employees to work longer should they wish to. However it’s important to note that individual employers can still operate a fixed retirement age if they can “objectively justify” it.
If you decide to work longer and past your state pension age, and decide not to claim your state pension, you’ll be entitled to a larger state pension when you do stop working or can elect to claim it whilst still working. The same may apply to any occupational pension scheme benefits you have accrued if you work beyond the scheme’s usual retirement age. The longer you do not claim any personal pension then the fund, depending on investment returns and contributions, may increase and the older you are the better the annuity rates are likely to be.
Changing rules on State Pension Age
The state pension age for women has been increasing since April 2010 and in November 2018 became 65 for both women and men. It is scheduled to increase again between 2018 and 2020 to 66 and to 68 by 2039.
How your new State Pension is worked out
- If you were still contributing to the State Pension prior to the 6 April 2016 you will qualify for a new State Pension on the new rules and your existing National Insurance record will determine your “starting amount”.
- If you’re starting amount is lower than the full new State Pension, you can increase the value of your state pension with further qualifying years up until you reach State Pension Age.
- You can do this even if you already have 35 qualifying years at the 5 April 2016, although you will not be able to increase your pension to more than the maximum amount of the new State Pension.
- Each further qualifying year after 6 April 2016 will increase your starting amount by 1/35th of the full new State Pension (up to the maximum level). For example, if the new State Pension is £175.20 a week this would result in each qualifying year being worth £5.01 in extra weekly state pension (i.e. 1/35th of £175.20).
- Your starting amount cannot be any less than your current entitlement. In some cases individuals will have a bigger state pension under the current rules than they would under the new rules. In such scenarios the bigger entitlement will be protected but there will be no opportunity to earn extra state pension.
You can apply for a State Pension statement at anytime online by going to https://www.gov.uk/check-state-pension.
The New State Pension is currently £175.20 a week (although you may potentially get more or less than this depending on your National Insurance record and any contracted-out service you built up before April 2016).
Boosting your State Pension
If it’s unlikely that you will qualify for the full new State Pension before State Pension Age you may be able to pay Class 3 Voluntary National Insurance contributions to boost your entitlement. Please go to https://www.gov.uk/pay-voluntary-class-3-national-insurance to check whether you can do this.
How to retire: next steps as you approach retirement
Four months before you reach state pension age you will receive a letter from the Pension Service. The letter will explain your pension options and you will need to respond to this if you want to claim your pension.
Options at State Pension Age
If you decide that you don’t want to draw your state pension on reaching State Pension Age you don’t have to. In this scenario you can defer drawing your state pension and it will increase by 5.8% per year for each year that you defer claiming it.
State Pension increases in payment – The Triple Lock
Once your state pension comes into payment it will increase in value every year by the greater of the following:
- Cost of living increases (as measured by the Consumer Price Index)
- Increases in national average earnings
I am nearly at retirement age. What should I do next?
You should investigate your options and decide if you want to retire now or continue working. Important factors to consider are your health, the pension available to you and whether you still enjoy working.
Can I receive my state pension before I retire?
No, you can only receive your state pension when you reach your official state pension age which will be 66 for both men and women from October 2020. You can retire before this point, but you will have to fund your own retirement.
Does the removal of the default retirement age mean I can choose my own later retirement date?
Not necessarily because your employer can still force you to retire at 65 if they can objectively justify this.
Will I receive the full state pension?
The state department that administers the state pension, the Department for Work and Pensions (DWP), have said that fewer than half of those retiring between 2016 and 2020 will get the full amount of state pension and that “contracted-out” workers, most public service workers, will receive no more than £133 a week.
In response to a freedom of information request the DWP have said that only 45% of the 3.5 million people retiring between 2016 and 2020 will receive the full £150 (approximately) a week.
If you are a member of a public service pension scheme (i.e. local government, NHS Pension Schemes) you are currently contracted-out of the State Second Pension.
The current state pension system is split into two; the Basic State Pension and the State Second Pension. Public service workers currently only earn an entitlement to the basic element which is currently £115.95 a week for someone with a full 30 year National Insurance record.
You hence do not get a State Second Pension but do pay less National Insurance, as does your employer. More specifically you pay 1.4% less National Insurance on your weekly earnings between £155 and £770 and your employer saves 3.4% in comparison.
With effect from the 6 April 2016 this will stop and you will no longer be contracted-out. You will therefore pay a higher rate of National Insurance contributions than currently.
Ultimately if you are reasonably close to retirement you will not get what you may expect as your existing National Insurance record will determine the majority of your entitlement and you will simply pay more National Insurance for relatively little extra benefit. Younger workers will typically however accrue a bigger state pension over time than they would otherwise have done (albeit through paying more in National Insurance and having to wait longer to draw their state pension).