The State Pension is unlikely to be your sole source of retirement income. After a lengthy career, you’ll have a workplace pension and other savings and investments that may form the bulk of your retirement planning.
It might be easy to see the State Pension’s weekly income as almost insignificant, but it could be the bedrock of your retirement and understanding its true value can make a massive difference in retirement.
Here’s how Hartsfield can help build the State Pension into your holistic retirement plan.
The full new State Pension is worth £179.60 a week
The full State Pension’s £179.60 a week might seem negligible in the context of your wider retirement plans. It isn’t guaranteed that you will receive this full amount.
You will need to have 35 “qualifying years” of National Insurance contributions. You’ll also need to consider any time you spent contracted out, and any additional contributions you might have made via the State Second Pension or SERPS.
If you have less than ten years of National Insurance credits you won’t receive a State Pension at all. If you have made “qualifying contributions” for between 10 and 35 years, the amount payable is calculated per year.
You can use the government’s website to:
- Check your State Pension Age
- Check your National Insurance record
- Check if you have ever been contracted out
Once you know when you’ll receive the State Pension, and how much, we can help factor this into your retirement plan. Hartsfield is pension advisors in Bristol, Bath, Wiltshire, Cheltenham and neighbouring areas.
Retirees are uncertain about how much the State Pension is worth
A recent Which? report found that three in ten of us are overestimating the size of the State Pension we will receive – some by as much as £50,000 throughout an average retirement.
The State Pension age is currently 66 but is due to increase to age 67 by 2028. Receiving an annuity equal to the State Pension at this age could cost around £300,000.
Built into a long-term and holistic retirement plan, the State Pension could free up other funds to be used in a more flexible way, or towards otherwise unaffordable luxuries.
Building the State Pension into your retirement plans
Once you have checked what level of State Pension you are due to receive, we can help you to factor this into your retirement. You might also want to think about making voluntary contributions to top-up your State Pension to the full amount.
There are many benefits to factoring the State Pension into your plans
- The State Pension is protected against inflation
The pensions triple lock currently means that your State Pension will increase each year in line with the highest of:
- 2.5%
- Average earnings growth
- Annual price inflation, as measured by the consumer prices index (CPI)
Between 2012 and 2020, two-thirds of the annual increases to the State Pension were higher than 2.5% – they peaked at 5.2%. Changes to the triple lock have been predicted for some time and the coronavirus pandemic may have increased the likelihood of reform.
- Stable and known income helps with budgeting
Having a regular income in retirement means that you can set aside certain bills and ongoing expenses that you know can be covered by your State Pension.
Taking care of these regular outgoings increases your disposable income.
- It could free you up to use flexible options elsewhere
As well as making budgeting easier, covering known expenses with regular income could allow you to take more flexible options with other pension pots you hold. Lump sums or flexi-access drawdown could be used to pay for discretionary expenses and one-off luxuries.
The importance of taking a holistic view
At Hartsfield Planning, we build a long-term retirement plan by getting to know you.
The plan we put in place will be based around your aspirations and retirement goals and will use all your sources of income to build a picture of your finances, putting a plan in place that is as individual as you are.
You might have private pensions, ISA investments, or regular income from buy-to-let properties, for example. Your entitlement to the State Pension will be a valuable addition.
It could free up funds to use elsewhere. It might even prevent you from needing to take one of the smaller pension pots you hold, allowing you to make use of pension tax efficiencies to pass your wealth to the next generation.
Get in touch
The State Pension might not be a priority within your retirement plans but ensuring you receive the full amount could make an enormous difference.
Building a holistic strategy that works for you means having all the available information. We can then make use of every source of income in a tax-efficient way that aligns with your goals and aspirations.
Please get in touch and find out how our team of expert financial planners can help you factor the State Pension into your long-term retirement plans.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.