For many people, retirement from work won’t come until the day they can access a State Pension.
That’s because the state pension is the main source of income for 44% of people, according to the Financial Conduct Authority’s Financial Lives survey for 2017. Without it they simply wouldn’t be able to afford to retire.
Even for the remainder who have a healthy private pension - maybe a work scheme or a personal pension such as a SIPP - it’s likely that the state pension will be a significant part of their overall income. Not just in terms of the overall amount it pays but also because it is guaranteed and linked to inflation, which other sources of retirement income may not be.
When you get the State Pension matters a lot, and should be a key consideration when planning your retirement.
It is a big problem, therefore, that many women now approaching retirement say that they have been unaware of their true State Pension age. More specifically, they have assumed they would get their State Pension years before they actually will.
The problem relates to the ongoing efforts to make State Pension ages equal for men and women, and then higher for both sexes as a means to make the benefit sustainable in the long term.
It’s been in the news because we have now reached the point when, for the first time, the state pension age for both men and women is equalised at age 65. This will now rise for both sexes to 66 by October 2020, then to 67 in 2026 and then to 68 by 2039.
To get to this point, the state pension age for women - which has traditionally been age 60 as opposed to 65 for men - has been rising over many years. The process began with legislation in 1995 which aimed to give the women affected the time they needed to adjust.
The problem is that many of these women have complained that the changes were not communicated to them properly. Some have even said that official websites have given them wrong information about their State Pension age.
This has been greatly compounded for some women by the additional rises to the state pension that affect both sexes. In particular, a cohort born between April 1953 to April 1955 have seen their State Pension age increase by 18 months but with just five years of warning to prepare. The debate now rages about what can and should be done to help those affected by the changes.
The issue is even more pressing due to a “gender gap” in State Pension income. The time that women take out of work to have children, and the greater likelihood of them having to care for family members unpaid, means that they are more likely to have gaps in their State Pension entitlements. In November 2017 the average weekly state pension received by women was £126.45 a week, or just 82% of the £153.99 a week received by men.
As part of efforts to avoid confusion about State Pension ages, the government has an online tool to show you when you can expect to receive your pension. You can try it here. But bear in mind that this may change in the future as increasingly longevity puts extra stain on the system.
That’s why it’s vital to understand your likely retirement income, and when you will start getting it, as soon as you can. Not only will you avoid nasty surprises about getting your State Pension later, it will also give you the opportunity to up contributions during your working life to increase your income when work eventually stops.
The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Eligibility to invest into a SIPP and the value of tax savings depends on personal circumstances and all tax rules may change.