State pensions have been making the headlines recently – but for all the wrong reasons. From historic six-figure underpayments to the suspension of the triple lock promise, many women are looking for more information about what it all means for them. Whether you’re two or 20 years away from retirement, here’s what all women need to know about pensions.
Investigations carried out by the BBC have uncovered shocking systemic errors within the state pension system, which have led to some women being significantly underpaid. The news outlet shared the story of 97-year-old widow Rosemary Chattel, whose son John discovered that she had been underpaid by almost £108,000 over a two-decade period.
Many of these failures have occurred through no fault of the women. However, there are certainly ways to plan ahead for retirement to ensure you don’t miss out on what you’re entitled to. Forewarned is forearmed, as they say, so it's smart to understand the basics about your pension before it’s time to begin claiming it.
When can I claim my state pension?
Currently, both men and women can claim their state pension at the age of 66. You can defer claiming it for as long as you like, as it is illegal for your employer to force you to retire. However, the state pension age is set to rise over the next few decades as life expectancies in the UK continue to increase. Between 2026 and 2028 it will increase to 67 and it’s predicted to rise to 68 between 2037 and 2038 (though this is yet to be confirmed).
How can I check how much state pension I'm entitled to?
Men who were born on or after 6th April 1951 and women who were born on or after 6th April 1953 won’t be entitled to the new state pension. Instead, they will receive the old state pension, which is split into two parts – basic state pension, which can be up to £137.60 per week, and additional state pension, which is based on factors like how many qualifying years you have on your national insurance (NI) record and how much you earnt.
If you’d like to find out more about the state pension, we’ve answered a number of questions in our article ‘How much is the state pension & what age will I get it?’.
Why are women missing out on years of pension payments?
One key issue is that, historically, married women’s pension entitlement has been tied to their husbands’ NI contributions. Under the old state pension system, married women who didn’t have enough qualifying years on their NI record were entitled to a 60% basic state pension based on their husbands’ entitlement.
However, a change in law in 2008 means that women can now claim only one year of backdated payments. The Department for Work and Pensions (DWP) says that it sent any affected women forms to fill out, but many who were impacted say they didn’t receive anything.
That doesn’t seem to be the only issue at play. A review has discovered that some “systemic failures” date back to 1992 – long before any changes in the law. Prominent pensions campaigner and former pensions minister Baroness Ros Altmann said: “there still hasn’t been an explanation about what’s gone wrong”.
What is the ‘triple lock’ pension promise?
The triple lock pension promise was introduced in 2010 under the Liberal Democrat/Conservative coalition. It promised that the state pension would increase each year in line with the highest out of:
inflation (according to the Consumer Prices Index)
the average wage increase
One of the key points of the Conservatives’ winning election manifesto in 2019 was the party would ensure the triple lock remained in place until the next election in 2024. This guarantee ensures the state pension keeps pace with the cost of living and is designed to stop pensioners slipping below the breadline.
Why is the triple lock being suspended?
The unprecedented circumstances of the last 18 months brought about by the global coronavirus pandemic have put an incredible amount of financial pressure on the UK government. One of the trickiest situations to navigate has been the end of the furlough scheme, which has seen employees return from a government-supplemented income to full pay.
Even though it’s not a true reflection of how much salaries have risen, this ‘jump’ in earnings has been recorded as an estimated 8% increase between May and July of 2021. Under the current triple lock rules, this would mean that pensions should also rise by around 8% for the next financial year – 3% more than it has increased by at any point in the last decade.
Coupled with intense financial pressure as a result of Covid-19, which saw the government borrow more than it ever has since records began, an increase this large isn't feasible. Work and Pensions Secretary Thérèse Coffey has announced that, for the 22/23 financial year, pensions will instead rise by either the inflation rate or 2.5% (again, whichever is higher).
When should I start saving for retirement?
It’s never too early to begin saving for retirement. 45% of people in the UK are aiming for an annual retirement income of £20,000. If they’re entitled to the maximum state pension, that means they’ll need to save enough to contribute an additional £10,000 per year. The earlier you begin saving or investing with retirement in mind, the less you’ll have to contribute to your pot each month (or the larger it can grow).
But it’s also never too late. One in six over-55s have no private pension pot at all, even though the maximum state pension can only offer an income of £9,110. Speaking to a financial adviser can help you make the most of the time you have before retirement and the funds that are available. They could help you set up a savings or investment plan that can move you closer to your retirement income goals, even if you’re about to retire.
We've put together a retirement countdown that can help you work out what you need to do before retiring, no matter how near or far it is.
How can I boost my retirement income?
Even if you qualify for the full state pension, it’s unwise to rely on it as your only source of retirement income. Contributing to an additional private pension pot will give you extra income for retirement. There are lots of ways to top up your pension, whether you choose to invest, opt for drawdown or use the amount to purchase an annuity.
If you’ve not been able to save for retirement, you may be eligible for pension credits, which will ensure you have a weekly income of at least £177.10 for single people or £270.30 for couples. You can also claim if you’re a carer, have a disability or need to cover housing costs, but eligibility varies from person to person.
To make sure you’re prepared for retirement and able to live comfortably, it’s best to plan ahead. At Unbiased, we’re making it easier to find trustworthy, knowledgeable advisers who can help you plan for a happy retirement. Use our simple search tool to find an expert financial adviser near you.