Updated 03 December 2020
Imminent changes to how the State Pension works could leave you worse off in retirement. Hereâs why relying on the state to support you in later life is a bad idea â along with seven tips on what you can do instead.
You may have heard that the new State Pension is going to rise. Or is it? You may also have heard that the new State Pension is going to fall. Which is correct? Are we going to be better off in the future, or are we going to be poorer? Will somebody please explain whatâs going on?
Hereâs the âState Pension Rises!â story (the one the government probably wants you to notice). The basic State Pension is currently a maximum ofÂ Â£115.95 per week if you are up to date with your National Insurance (NI) contributions. However, from April 2016 it will rise to Â£155 per week. So great news, right?
Not quite. Hereâs the part thatâs had much less fanfare. There are actually two State Pensions at the moment, the basic one and the Additional State Pension, which used to be known as Serps (State earnings-related pension scheme). This second pension is based on earnings, and can provide up to Â£166 more per week (though the average is more like an extra Â£30, due to the number of people whose NI payments arenât up to date). But the upshot is that a great many pensioners are currently receiving more than the Â£155 promised by the new State Pension.
The new flat rate may be welcomed by some people, but itâs hard on those whoâve made NI contributions all their lives, only to find they will receive less in retirement. Current estimates are that about 20 million people will be worse off by an average Â£1,400 a year. Itâs yet another reminder (as if we needed one) that relying on the State Pension is increasingly not an option. After all, itâs not just the newest round of changes we have to worry about â how many more changes might come into play between now and the date we retire?
The only sensible response to all this is to make your own arrangements. Think of your personal or workplace pension as the core of your retirement income, and get used to thinking of any State Pension you might receive as just a useful extra.
Tips for building up your pension
Whether youâre just starting to save into a pension or are soon to retire, find a specialist adviser here.