How does working until 67 and living on £203.85 per week sound to you? That’s the reality for those who do not have their own savings and investments. To receive the full amount of £203.85 per week, or £10,600 per year, you need to have paid National Insurance for at least 35 years. The main ways in which people receive qualifying years is as follows:
- you were working and paid National Insurance contributions
- you were getting National Insurance credits for example if you were unemployed, ill or a parent or carer
- you were paying voluntary National Insurance contributions
If you have less qualifying years, the amount you receive will be less, and if you have under ten qualifying years, you won’t receive anything at all.
The new State Pension is income received from the government from age 67 until your death, and as people are living longer, there’s much speculation about pension age increasing from 67 to 71. Everyone should ask themselves if working until 71 aligns to what they see for their future. The answer might be yes for some and no for others, but it’s crucial to be informed so you can make the right choice.
You might love your job and stay healthy for a long time, but you never know what the future holds. There are many things that can affect your ability or desire to work, and they are not always in your gift. Your health might deteriorate, you might have a change in management at work, or you might be needed for caregiving responsibilities. Given these uncertainties, it is prudent to take steps to build a degree of financial freedom that gives you the option of stopping working if your circumstances change. There are number of small actions that you could take today to set you on your way.
- Find out how many qualifying years you already have: Check your level of state pension entitlement on the government website gov.uk/check-state-pension. The first part of planning for your future is understanding your current situation.
- Check how much you have in your pension (s) through work: You might only have one private pension, or you might have several through different jobs over the years. These can really add up so make sure you are aware of who your pension providers are. A good starting point is gov.uk/find-pension-contact-details.
- Make sure you’re contributing to your workplace pension: Do not opt out of your employer pension scheme unless absolutely necessary. Contributing to an employer pension scheme is valuable because your employer also contributes so you are maximising your position. You can get access to your private pension from age 55 but this is increasing to 57 in 2028.
- Start saving or investing in non-pension vehicles: ISAs are a powerful tax wrapper where income and growth can be generated tax-free. The annual allowance is currently £20,000 and you can access your ISA at anytime using tax-free withdrawals.
- Seek professional advice and do your own research: Past performance is not an indicator of future returns, but assets holding equities have historically delivered real returns above cash and inflation. This could maximise your savings to either reach your goal quicker, or with a larger amount. Investing can be very risky if you follow the wrong advice, so do research from reputable articles or take professional advice.
- Make a financial plan: Set a target age at which you wish to retire and then think about how much you might need to spend. This is the basis that will help determine how much you need to start saving today.
Investors should be aware that the price of investments and the income from them can go down as well as up and that neither is guaranteed. Investors may not get back the amount invested. Tax treatment depends on individual circumstances and may be subject to change in the future, so you should seek independent tax advice, as to your own position. The information in this article does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it.