When it comes to planning for later life, knowing when you can retire has to be one of the most important considerations. Retiresavvy looks at what age you can retire.
What’s the State Pension Age?
The State Pension Age is only going one way – up. The State Pension Age is currently 65 for men and will reach 65 for women by November 2018, rising to 66 for both by 2020 and then 67 for both men and women by October 2028.
The Government will review the State Pension Age every five years and make changes if it thinks they are necessary, based on life expectancy and other factors, with the aim of people being able to spend about a third of their lives in retirement.
Many women born in the early 1950s face waiting longer than expected to draw their State Pension. Changes in the law mean their State Pension Age is going up faster than many had planned for, and some have argued they have not had appropriate notification about the changes.
The Government has a calculator to help work out your State Pension Age.
How much is the State Pension?
The current Basic State Pension (BSP) is £115.95 a week, rising to £119.30 in April 2016. To get the full Basic State Pension at present, you need to have been paying in National Insurance Contributions (NICs) for 30 years. It doesn’t matter if you have more than 30 years’ NICs; the amount of Basic State Pension you will get is the same
From April, the New State Pension (NSP) is being phased in, which will be worth up to £155.65 a week. The number of years’ NICs you need to have to get the full amount will rise from 30 to 35, and not everyone who retires over the next few years will receive the full amount. In fact, the Government’s own estimates are that only 45% of people retiring by 2020 will get the full amount.
The Government will work out how much State Pension you would have built up under both systems – that is, as if the New State Pension rules were in place since you started work as well as what you have already built up – and you will get the higher of the two sums.
The New State Pension is quite complex, with winners and losers from the new system – we looked at it in more detail.
There is also the supplemental ‘top-up’ Additional State Pension scheme, often called SERPS or S2P, which is based on extra, earnings-related NICs payments. For 2015-16, the maximum Additional State Pension you can get is £164.36 a week on top of your Basic State Pension.
The Additional State Pension is being phased out from April, when the New State Pension comes in, so you won’t be able to build up any extra entitlement from this date.
You can take your private pension from age 55
Since April 2015, people with defined contribution (DC, or money purchase) pension schemes have had the right to access their savings from age 55 onwards. This means you can retire at age 55 if you have sufficient savings and are confident you can afford to do so.
If you do access your money, you can take 25% as a tax free lump sum. You can use the rest to buy an annuity, or you can take money out on a more flexible basis. You can do this either by taking the whole pension pot as a lump sum, or moving it into what’s called a drawdown account.
Be aware that taking money out of your pension pot is subject to income tax. Depending on how much you take out during the year, you could be hit with a large tax bill.
For example – if you cashed in a £100,000 pension pot, you could take £25,000 as a tax free lump sum. For the 2015-16 tax year, you would pay just over £19,400 in income tax on the remaining £75,000 (including paying more than £13,000 at the Higher Rate of 40%), leaving you with around £55,600 – plus the £25,000 tax free lump sum.
You should also consider that your pension pot is meant to last you the rest of your life – spending it quickly could leave you in a bad financial position in later years.
Do you have other pensions?
According to charity Age UK, the average 65-year old has had five or six jobs throughout their career and one in ten has lost track of the whereabouts of at least one of the pension schemes they’ve joined in that time. With younger workers changing jobs more often, this problem is only likely to get worse.
If you need to track down a lost pension, your first port of call should be the pension scheme trustees of your past employers. If you can’t remember or can’t find the details of past employers – they may have moved or merged over the years – then the Government’s free Pension Tracing Service can help you track them down.
The Pension Tracing Service can give you your provider’s contact details, but it’s up to you to get in touch with them to find your pension and make arrangements to claim it.
Ask yourself how much income you may need
Take a detailed look at your incomings and outgoings as this will help you work out what you need to live on in retirement.
Consider household bills including utilities (including internet and mobile phone), insurance, transport, entertainment like tv packages as well as meals out and other activites, holidays, gifts and emergency repairs.
Remember that your spending patterns will likely change – you’ll probably be spending less on transport as you won’t be commuting to work, but it’s likely that utility bills will rise as you spend more time at home, and you’ll also probably spend more on leisure activities.
Read more like this:
- Pension freedoms – what’s the catch?
- Will my pension be enough?
- When can I go for help with my pension?
This article has been commissioned by retiresavvy and any opinions voiced are the author's own. This article was revised in January 2016 to bring it up to date with the most recent changes to the state pension system.