|
|
|
It may seem like a long way off, but the sooner you start making arrangements for your retirement the better. Start saving and investing your money wisely now and you’ll help to ensure that you can maintain a comfortable lifestyle when you finish work. Standards of living and medical care have improved dramatically since the mid 20th century, meaning that life expectancy has increased a great deal. This means that people are enjoying longer retirement periods in good health and want to be able to make the most of the opportunity to keep themselves fit, active and entertained – which costs money. Another key factor that has an impact on personal financial situations during retirement is that in today’s society people tend to do things later in life. More and more people are going to university, which delays the start of their career and earnings, and people also tend to marry and settle down later, meaning that they may buy their first house later and may still be making mortgage repayments when they reach pension age. So it’s vitally important to make arrangements as early as possible in life to ensure a reasonable income during retirement. Let’s have a look at state pensions and how they provide for people in retirement. This article is written for informational purposes only and is not intended as financial advice. You should consult a financial advisor for guidance on pensions and other personal financial matters. Let’s first define what a pension is. Put simply, a pension provides a regular sum of money as tax-free income for people who are no longer working. State pensions are administered by the Pensions Service, a government department of the Department for Work and Pensions. The state pension age for men is 65 and for women it is 60 (due to change to 65 in 2020). However, the state pension is not available to everyone. It depends on how long you have worked for and how many national insurance contributions (NICs) you have accumulated. NICs are converted into what’s known as ‘qualifying years’ and this is what is used to calculate your entitlement. To receive the full pension, you’ll need to have worked (or paid contributions for) almost your whole working life, but you can receive the minimum pension if you have managed to build up a quarter of the necessary qualifying years. However, those who give up work in order to care for children or relatives will continue to accumulate contributions in the form of ‘home responsibilities protection’. Also, unemployed people in receipt of unemployment benefits will also continue to accrue contributions as part of their benefits. If you’ve got less than 25% in qualifying years you are not eligible for the state pension. However, you may be eligible to receive assistance from the government in other forms, for example the Over 80 pension or pension credits, if you are struggling to get by. As well as this basic state pension, there is an additional state scheme that helps people to boost their state pension. It changed in 2002 so you may know it by either of its names – either the State Earnings Related Pension Scheme (SERPS) or the Second State Pension (sometimes abbreviated to S2P). SERPS was designed to enable people with a weekly income of over £75 to contribute extra NICs according to their income. It wasn’t obligatory to be part of the scheme – people could ‘contract out’ if they didn’t want to pay more NICs or if they wanted to use the money to supplement their own private pension. However, as this discriminated against people with low earnings and people who have had periods of unemployment, the government introduced a new scheme, the Second State Pension, to empower everyone to set aside more for their future after work. The S2P is also earnings-related, but it makes better provision for people on low incomes or those who are out of work by contributing supplementary credits on their behalf. It’s also possible to opt out of the S2P if you don’t want to pay extra towards your state pension or if you want to boost your personal pension. It’s a good idea to keep an eye on your pension on a regular basis to monitor how much it is likely to provide you with in retirement and make any necessary adjustments to ensure you don’t lose out. It’s possible to check the status of your state pension by getting in touch with the Pensions Service. See its website for details:www.thepensionservice.gov.uk. This article is copyright protected and is not for republishing |
