Millions will have to wait until they’re 66 to start claiming their state pension, as the minimum age has been hiked from 65.
The changes to the state pension age (SPA) came into effect today (6 October), and will apply to both men and women born after 5 October 1954.
Here, Which? looks at how the state pension works, why the SPA has gone up and how much you could claim.
How does the state pension work?
The state pension is a weekly payment from the government that you receive when you reach SPA.
The amount you get will depend on how long you’ve been contributing towards it and the type of private pension you have.
In order to qualify for the state pension, you need to make National Insurance contributions. You need a minimum of 10 years’ worth of contributions to get anything at all. In order to get a full state pension, you need 35 years’ worth of contributions.
You may not have enough qualifying years because of gaps in your record. These can be caused by unemployment, being ill and not working, taking time off work for childcare or living abroad. If you don’t have enough qualifying years, you can pay voluntary contributions.
Why has the state pension age gone up?
The rise was announced in 2010 by then Chancellor George Osbourne, due to increases in life expectancy among UK workers.
More people are expected to spend a larger proportion of their adult life in retirement than ever before.
The SPA is expected to rise again to 67 in 2028 and to 68 from between 2037 and 2039.
Use our SPA calculator to find out when you’ll qualify for the state pension payment.
How much state pension will you get?
The amount you receive depends on your circumstances and when you qualified for the state pension.
The full, basic state pension is £134.25 in 2020-21. This applies to people who reached SPA before 6 April 2016.
If you’re employed, you might also have built up some additional state pension, based upon your earnings during your career, meaning many people get more than the basic state pension.
If you were born after 6 April 2016 you’ll qualify for the new state pension which is £175.20 in 2020-21. You might get more or less than this. If you’ve built up some additional state pension, you’ll get a higher amount.
You may have been opted out of the additional state pension – called ‘contracting out’. This saw you give up the option of building up additional state pension in return for a bigger private pension. If you were contracted out for a long period, you might get less than the ‘full level’ of the new state pension.
The ‘triple lock’ increase
Under the ‘triple lock’ system the state pension increases by the highest of growth in wages, inflation as measured by the Consumer Prices Index (CPI) or 2.5% every year.
The government takes September’s CPI inflation and uses the three-month average of weekly earnings from July to help work out what the uprating will be.
This April the state pension increased by 3.9% to match the average earnings increase seen by UK workers in July last year.
We don’t yet know how much the state pension will be increased by next year, as September’s inflation figures have not yet been released.
Are your retirement savings on track?
The state pension age hike is a timely reminder for workers to ensure their retirement savings are on track, especially if you’re in a defined contribution (DC) scheme.
Here are some key things to consider:
Get an estimate of how much you’ll have: pension statements from your employer or provider are useful to indicate how much you’ll get. You can also use our pension calculator to do the sums.
Check your state pension: a state pension forecast will help you to gauge how much you’re on course to get from the government, which you can obtain from its website.
Track your expenditure: this will give you a better idea of what you’ll be likely to spend in retirement. For example, will you have paid off your mortgage by then? We’ve put together a guide that highlights how much you could need in retirement based on three levels of spending – for essentials, a comfortable retirement and a more luxurious lifestyle.
Get financial advice: if you can afford to, it’s wise to go down this route if you have some complex decisions to make. For guidance on your options for using your pension pot, you can use Pension Wise – the free and impartial service backed by the government.