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Expert Q&A: 6 things you need to know about pensions

Elderly couple

The Emergency Budget bought good and bad news about pensions, according to the pensions expert Ian Robinson here at Which? He tells us what you’ll be entitled to when you (finally) retire.

1. I’ve heard the state pension age is increasing – is this true?

Yes, it’s scheduled to go up. For women it’s already rising from 60 to 65, so by 2020 men and women will have the same retirement age.

The contentious change is what happens next. The last government had planned to increase the retirement age to 66 by 2026, but the new government plans to bring this date forward to 2016 for men and 2020 for women. This is being reviewed and an official announcement will be made in autumn.

2. Does this mean I have to work longer to get my pension?

I’m afraid it does. It depends on when you’re born of course. The latest news means that anyone born before 1951 will be able to claim state pension at 65, but anyone born later is in for a nasty surprise.

All parties are talking about putting the retirement age up to 67, 68 and even older. The previous government had scheduled retirement age to rise to 67 between 2034 and 2036 and to 68 between 2044 and 2046. This all sounds a long way off, but as the current government is talking about bringing the dates forward for retiring at 66, the suspicion is that they might try and bring forward the other dates as well.

3. Will I still get a state pension? How much will it be worth when I retire?

It all depends on your National Insurance Contributions (NICs). The current state pension is £97.65 a week, but you don’t get this amount unless you’ve made enough NICs in your working life. Under the old rules men had to contribute for 44 years and women 39, but it’s now fallen to 30 years for both. So that’s a little ray of sunshine in the pension gloom.

4. What about the fact that pensions are now linked to earnings – how will this affect me?

On the surface at least, it means that people should be better off, so it’s good news. For the past 30 years or so, the link between earnings and pensions has been broken and pensions have been linked to the retail price index (RPI).

But what tends to happen each year is that earnings outstrip prices, so today’s state pension hasn’t grown in-line with the standard of living. It’s been estimated that if pensions had continued to go up in-line with average earnings from 1980 onwards, today’s pension would be worth £140 instead of £97.65.

So, the theory is that by restoring the link with average earnings, pensions will keep pace with the standard of living better than they have done in the past 30 years.

5. What if I want to retire earlier?

In theory you can retire whenever you like, so long as you’ve got enough money. You have a right to start taking your private pension at 55, but there won’t be as much in the pot as there would be at 65, so it won’t be as much as if you waited until later. The reality is that most of us have to work to 65 to get a full pension.

This is called normal retirement age. In some professions you can claim your full pension at a younger age, such as teachers, who can claim full pension at 60. The question still remains that if state pension age is increased will normal retirement age be ramped up at the same rate – or will it stick at 65? No one has properly resolved that yet.

6. Can I work longer than state retirement age?

Although a lot of people start out wanting to retire early, taking early retirement can be so expensive that a lot of people end up wanting to do the opposite and carry on working beyond 65!

So then the question is: can I force my employer to keep me on after 65? You can’t – although you can request to carry on working. The default retirement age is still 65 in the UK. There’s been a lot of discussion about it and the new government has indicated it wants to permit people to continue to work beyond 65. The rules are currently under review and by the end of the year we should know more.

Noreen Bracken says:
18 July 2010

Interesting, basic info. Would welcome regular updates on this. I was born August 1951 so have already been told will not get pension till 15 months after turn 60. Afraid it could be longer as their is so much talk going on of more changes, hard to tell what rumour or fact!

I think it is wrong that people who have worked for over 40 years and payed all their taxes are now told that they will have to work longer before they get their state pension. If I work until I am 65 I will have worked for 49 years.

I’m 66 and I’ve worked for 50 years, it’s not unusual?

The only injustice I can see is the ludicrously short working lives of those in the public sector.
They should be brought into line with the private sector pension age with immediate effect, — and have their gold plated pensions reduced.

Frank says:
24 March 2011

What a shame that Stephen doesn’t want to work until he is 65 like everybody else. I am also 66 and worked for 50 years. If more people put in their fair share of work the country might not be in the situation that it is now.

frogmelladb says:
4 August 2011

I have to object to the comment on public sector workers/pensions. I work in a part of the public sector where our wages are way below other public sector workers such as teachers, police, nurses, etc. (about 25-30% less at entry level with no automatic incremental increases). In return for this Margaret Thatcher, who was not known for giving things away, agreed that the government would pay more into our pensions. The current and previous government have now frozen our pay and now we are expected to pay more into our pensions and get less out in the end. As for the retirement age, I can retire at 60 if I wish (and if this is not changed), but will still not receive my state pension (yes we pay NI and tax like everybody else) until I am 65-68 depending on what age the government decide on.
The people I feel sorry for are people who work in parts of the public sector that earn even less than I do!

I consider you are better working longer it keeps you young. But if your job is hard and stressful then stop as early as possible. Remember when you started work your life expectancy was near or at your retirement date you can enjoy much more life now.

The " little ray of sunshine " saying we will get full pension after contributing for 30 years sounds good. My main concern is about others who do not have another pension, how can any one survive on a state pension ? I know it has been discussed politically for years that there is a bomb in the future about pensions, but how many people made suitable contributions for another pension earlier enough in their work days. When I remember, I know my father did not because that generation didn't think about it.
Thank who ever I can ( an logical atheist comment ) that I paid into a public pension from day 1 of my employment

Work and Pensions Secretary Iain Duncan Smith yesterday said that they were looking to accelerate the plan to raise the pension age to 68 (which Labour had planned for 2044). Could be tough for manual workers.

Helen says:
20 July 2010

The proposal to restore the earnings link is great news, but will it be retrospective? Will it affect all pensioners or only those who retire after the law goes through, as it were? I retired last September and would love to know this – everything the Coalition is doing is so destructive. I can't believe they're actually doing something good!

Big Al says:
20 July 2010

I've now been working full time since I was 16, 38 years in total and rather fortunately I have also been paying into both the state and private pension funds since I was 18. The one issue I have is that since a certain Gordon Brown ravaged the UK pension industry what I had saved has not grown for the last 13 years so whatever happens I just hope that it encourages growth in the UK pension industry so that the funds I do have provide me with a living pension.

This is really not so dificult to reconcile. If you are careful (and fortunate) you can set aside a sum over and above the statutory National Insurance amount to supplement the pension you eventually receive. It is tax efficient too and it is a very good way of saving. So some sacrifice now for later benefit. Of course this will come over as patronising ******** to those who live from hand to mouth, but it does not detract from the principle that 'you reap what you sow'.

Bob says:
24 July 2010

My wife & I with many of our friends & relations who have now got to retiring age feel sorry for you who have to work until you drop owing to the pension fund not being able to last for years to come but feel that those who over the past years when work was plentiful should have got a job , as we who have worked since leaving school without a break should help pay pensions to people who have just sat at home , & looked out from behind closed curtains in the morning then gone back to bed knowing they will be given help , a pension for doing absolutely nothing all there lives to be given something , why the **** should they get it when everyone has got to work for many more years to get something they have paid for all there lives as a natural thing . The saying is You Do Not Get Something For Nothing , BUT MANY DO .

It was Thatcher that robbed me of £40 a week or some £15,000 at the very least – do I get that back while the CON-DEMS are power? I’ve had to live with ever diminishing pensions because both my pensions started in-line with average earnings – until Thatcher

As for the so called benefit frauds – may I point out it was your DUTY to report them to the authorities. – so YOU are to blame Plus a great many of those on benefits were/are on benefits for perfectly sound reasons that you know nothing about

Please stop picking on them – they have a hard enough time already. Even under the best benefits they only get the minimum required to live normally – not at some subsistent level.

We live in a welfare state.that means we should pay to keep everyone on a normal standard of living through our taxes.

If you know of a fraud – REPORT IT – not whinge about.

Sorry but I am sick and tired of hearing about benefit fraud that has no foundation.

A quick update… the government has now said it will be phasing out the Default Retirement Age. Ian tells us what he thinks about the decision here: https://conversation.which.co.uk/money/fixed-retirement-age-axed-but-will-we-work-longer/

Anne says:
10 April 2012

Increasing the pension age is seemingly inevitable but those manual workers who earn below average earnings and work long hard hours will find it increasingly difficult to continue until they are nearly 70 years old. My husband is 57 and already begining to feel the strain. I suppose it suits the governments purpose if many of these (mainly) men drop dead before they draw their pensions.

Bert bryans says:
25 March 2015

If the WORKING wage is £7.60 per hour x 40 =£304……why do pensioners get £117 per week to live on

It’s a good question Bert and perhaps you will have an opportunity over the coming weeks to ask a politician to justify it.

The easy answers are –

a. The state pension is based on a contribution record and was not intended to provide all one’s living expenses – additional personal provision has always been necessary to secure a better standard of living.

b. Tax will take a slice off the working person’s income whereas the state penion is below the first tax band.

c. Working people have travel-to-work and other expenses which cut into their after-tax income.

d. Pensioners with no more than the basic state pension qualify for several other benefits not available to working people.

Although it doesn’t seem to be a significant issue at the forthcoming general election there is a widespread feeling that the state retirement pension is inadequate to lift people from dependency and relative poverty. You have compared the state pension with the working wage; others draw attention to the allowances made for bringing up children. The high costs of heating and home maintenance affect pensioners badly [especially if a couple becomes a single-person household] whereas having a child requires little extra household expenditure beyond food and clothing. Lots of suggestions have been made for raising pensions substantially but the stumbling block has been where the money would come from. At least the state pension will go up by considerably more than inflation in the next year or two and help reduce the differential with wages.

Bert bryans says:
22 March 2015

The local head teacher is on £160000 a year ,he will retire at 55 ,bring those employed by the state into line with the real world.

That’s another good question to put to your Parliamentary candidates. And don’t forget to mention the gold-plated teachers’ pension scheme which will outstrip anything in the private sector for a comparable position.

Heateachers are at the top of a multi-layered pyramid that almost guarantees highly-progressive remuneration. Comparisons with private sector jobs are not straightforward, nevertheless, on the face of it the rewards look disproportionate.

These sort of comments are frequently dismissed by politicians as the “politics of envy” but they are legitimate questions that they need to face up to. They should not under-estimate how much ‘relativities’ mean to people in considering their personal well-being and the fairness of society.

Private Eye reports that Nottingham Trent University comes 84th for research excellence, 57th for student satisfaction, and 1st for vice chancellors salary – £623 000 – no doubt with a suitable pension. It’s not the politics of envy, is just madness.

Malcolm – I agree that this is ridiculous that university VC salaries re too high but they are minor compared with the salaries in the highest paid jobs in industry. When I wrote to the CEO of Marks and Spencer to complain about music in M&S stores I remember learning that his salary and bonus was in excess of two million pounds.

It does not matter whether we are considering the public sector, the private sector or universities – which fit in neither. The public has to foot the bill.

We should not have excessive remuneration (salaries + bonuses + various perks) in any sector, but surely the priority should be to start by tackling the biggest problems, which lie in industry.

christine foden says:
29 March 2017

my husband has a private pension will this effect his state pension?

This comment was removed at the request of the user

It might seem like double taxation on pension income but in most cases there was tax relief on contributions to occupational pension schemes. Obviously, once the scheme pays out the beneficiary pays tax on any income that exceeds their tax allowances.

The state retirement pension is based solely on contributory years and cannot be affected by a private pension. But, as Duncan points out, income tax can have a slight levelling effect.