Planning with the UK State Pension

The UK State Pension is being pulled further and further away from us.

The State Pension age has risen over time and people are now having to plan for later retirement than expected. With the full state pension usually representing a backbone income-for-life of around £8,500 per annum, it would be a major loss to miss out on several years’ worth.

Women have been particularly affected. Their state pension age, until recent years, was 60. Now those aged 58 previously expecting to retire from 60, won’t get their pension until they’re 66. This is pretty tough. While clearly age equalisation was needed, it’s still a bitter pill for those so close to retirement.

Planning with the UK State Pension

As advisers, we plan for retirement with clients every day. Most people want to retire earlier than their state pension age if they can afford to. Everyone at least wants the option to retire, the knowledge that they could, at any point, strop straight out of work and into retirement.

Now we have pension freedoms, the majority of our work as financial and retirement planners is gap-filling.

Gap Filling to the State Pension

That is, filling the gap in income between when you actually retire and when the state pension will kick-in to support you. So, a 60-year-old retiring, has 6 years before they get the pension from the government, so need to find a higher income in the interim from other sources, which they can then ‘turn down’ when they are able to claim from the state. Pension freedom – that is the flexible rules over being able to draw unlimited income from your pension fund, offers a great opportunity to do just this, and gap-filling is becoming the keystone of at-retirement advice.

Planning around State pension income

If the plan is to retire at age 60, other sources to the UK State Pension would be needed to generate income. The UK State Pension won’t be available for a 60 year old female until they are aged 66 and six months.

To meet an early retirement goal, consider using flexi-access drawdown under a private pension.

Under flexi-access drawdown, income withdrawals are controlled by the member. If a retiree wants £15,000 per annum income from age 60, they could use a private pension to pay that income in full at first. For a 60 year old, that would mean private pension withdrawals for the first 6 1/2 years (between age 60 and 66-and-six-months), before opting to ‘turn income down’ to just £7,500 pa at the point they claim from the State – preserving their pension pot.

By filling an income gap using private pensions, you can ensure a steady retirement income. While this strategy involves spending more private pension funds in the first few years of retirement, it does provide the valuable income in the first years of stopping work, when still in good health and wanting to do all the things you promised yourself.

If you’ve worked and saved for retirement, ensure your pension wealth works effectively for you. That should include the UK State Pension.

More Information

For more information about the state pension, or how you should be planning for an income when you no longer work, please get in touch.

To find out about your UK state pension entitlement, log on to the Government Gateway, or complete a Form BR19, that’s the form to send off and apply for your own personalized forecast along with options of how you may be able to top it up if you’ve haven’t saved for the full 35 years.

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