It's getting harder to predict your state pension. Changes to state pension age and pension credit, alongside reports of forecasting errors, are creating uncertainty around this most important benefit. Article by Nick Green.
If you've ever used the government website to get a forecast of how much state pension you'll receive, you may have wondered, 'How accurate is that prediction?' The answer is, not very accurate. State pension reforms risk leaving an increasing number of people unsure what their retirement income may be. Ongoing rises in the state pension age have coincided with a change to related benefits such as pension credit, which could potentially leave some couples up to £7,000 a year worse off.
The old system of pension credit has now been replaced by Universal Credit, in a change that will most affect couples who are significantly different in age. Pension credit has been available for people on a low income who are retired and have reached state pension age. It tops up the person’s income to a minimum level, currently £167.25 for single people or £255.25 for couples (who don’t have to be married). This benefit is particularly valuable for those who may not qualify for the full state pension, due to gaps in their National Insurance contributions.
Pension credit has previously had the advantage that only one partner in the couple had to be over state pension age. So for example, a woman aged 60 could be earning money while her retired partner, aged 65 or over, claimed an income top-up. However, from 15 May 2019 this is no longer the case, and both partners in the couple must be of state pension age or over in order to claim the couple’s allowance.
The change will not affect those already in receipt of pension credit, but will affect anyone who makes a claim on or after 15 May. According to the Department of Work & Pensions (DWP) around 60,000 couples will be affected by 2024. Pension experts estimate that some may end up worse off by up to £7,000 a year. Arguably the worst hit will be people over state pension age who would qualify for the credit if they were single, but who will not qualify simply because they have a partner of working age.
People already waiting months longer for state pension
The change to pension credit has been in the pipeline for some time (it was part of the Welfare Reform Act 2012) but is only now coming into force. Inconveniently for many, it also coincides with an increase to the state pension age. This age will rise to 66 for everyone by October 2020, but as the change is phased in some people may have to wait longer than they expected for their state pension, as shown in the table below:
|
Your date of birth |
Date you reach state pension age |
|
6 December 1953 – 5 January 1954 |
6 March 2019 |
|
6 January 1954 – 5 February 1954 |
6 May 2019 |
|
6 February 1954 – 5 March 1954 |
6 July 2019 |
|
6 March 1954 – 5 April 1954 |
6 September 2019 |
|
6 April 1954 – 5 May 1954 |
6 November 2019 |
|
6 May 1954 – 5 June 1954 |
6 January 2020 |
|
6 June 1954 – 5 July 1954 |
6 March 2020 |
|
6 July 1954 – 5 August 1954 |
6 May 2020 |
|
6 August 1954 – 5 September 1954 |
6 July 2020 |
|
6 September 1954 – 5 October 1954 |
6 September 2020 |
|
6 October 1954 – 5 April 1960 |
Your 66th birthday |
So for example, a person born on 6 August 1954 would have to wait until 6 July 2020 before reaching state pension ago – just one month shy of their 66th birthday. If that person had planned to retire at 65, they would have to manage for 11 months with no state pension income.
It is particularly important for those born post-1953 to find out exactly when they reach state pension age, as many may still be wrongly assuming it is their 65th birthday.
How accurate are state pension forecasts?
Questions have also been raised recently over the accuracy of state pension forecasts. Julia Medhurst, a former careers officer, became suspicious when her forecast of £164.35 per week was significantly higher than her previous forecast. On contacting the DWP she learned that her true forecast was £129.66 per week – over £1,800 a year less. She only spotted the error because she knew she had been ‘contracted out’ of part of the state pension (something people used to be able to do when there was an Additional State Pension).
Julia said, ‘If I had not phoned them, the incorrect pension forecast would have remained until the actual date of my state pension date. This seems disgraceful to me. It is impossible to do any meaningful planning.’
Former pensions minsters Steve Webb, now director of policy at Royal London, feared this might not be an isolated case. He said, ‘If [Mrs Medburst] had a past statement which reflected contracting out and a more recent statement which did not, this suggests that HMRC have in effect managed to "misplace" [the] contracting-out data. We have still not had a satisfactory explanation as to how this happened. [This] experience raises the question of whether people can trust the state pension forecasts they are being sent.’
Clearly, when people are trying to plan for their income needs in retirement, they want as much certainty as possible over how much state pension they will receive, when they will start receiving it, and what other benefits they may be entitled to. If there are any shortfalls or gaps, it is vital to find out about these as soon as possible, so that other plans can be put in place.
