If you're approaching retirement soon, finding out much State Pension you'll receive will likely be one of your considerations.
We reveal how.
The Government's plans to introduce a new flat-rate State Pension of £144 a week from April 2017 means it's a far simpler calculation for people retiring after that date. If you've paid a minimum of 35 years' worth of National Insurance contributions then you'll get the full pension. If you've paid at least ten years' worth, then you'll get some pension – how much depends on how many years' contributions you've made.
The State Pension age will also change to 66 for both men and women by 2020 and 67 by 2028. At least that's the plan curently. Of course, this could all change, particularly if the Labour Party wins the 2015 General Election outright.
If you're retiring before 6th April 2017, the situation is a lot more complex. Read on to find out more.
Basic State Pension
You must have paid at least a year's worth of National Insurance contributions by working or have received a year's worth of credits (for example if you've received benefits, been ill or been a carer) to receive any Basic State Pension. If you've paid 30 years' worth of National Insurance contributions or received 30 years' worth of credits, you'll get the full Basic State Pension, currently £107.45 a week. If you have fewer years of contributions or credits, you'll receive less.
If you're not eligible for a Basic State Pension or not receiving the full amount, you might be able to 'top up' to £64.40 a week through your spouse or civil partner's National Insurance contributions.
If you don't have enough contributions, you may also choose to pay voluntary contributions to top them up. You'll usually be sent a letter by HM Revenue & Customs if there are gaps in your history.
If you want a quick estimate of when you'll receive your State Pension and how much you'll get, you can use GOV.UK's State Pension Calculator.
If you haven't been working, for whatever reason, you can check how many credits you've accrued by requesting a National Insurance statement from the HMRC website, calling 0845 302 1479 or writing to:
HM Revenue & Customs
Benton Park View
Newcastle upon Tyne
SERPS/Second State Pension
You may also have paid into the State Earnings-Related Pension Scheme (SERPS) and/or the Additional, or Second State Pension. SERPS was replaced by the Second State Pension in 2002.
The Second State Pension provides additional money to workers (based on National Insurance contributions), carers and people with a long-term disability or illness. If you fit one of those criteria, you will have contributed to your Second State Pension unless you 'contracted out' and paid into an occupational or private pension scheme instead.
If the 2017 pension changes go ahead, then the Second State Pension will be abolished and new retirees will receive the flat-rate Basic State Pension.
For an estimate of your Basic State Pension and Second State Pension, you'll need to request a detailed State Pension statement from the Pension Service website.
To use this, you'll need to register with the Government Gateway, and you'll be sent an activation code in the post.
Pension Credit is paid out to people who have a low retirement income. There are two elements – the Guarantee Credit and Savings Credit. The Guarantee Credit is a weekly retirement income of less than £142.70 (for single people) or £217.90 (couples). Savings Credit is an additional element for people who have some savings. This is currently worth up to £18.54 a week for single people and up to £23.73 for couples.
Make sure you claim this if you're entitled to it – the Government estimates that 1.8 million people currently don't. The Savings Credit element is due to be scrapped in 2017.
If you think you might be eligible for Pension Credit, then you can get an estimate from GOV.UK's Pension Credit calculator.
Note that if you've not reached the Pension Credit qualifying age (60), you should enter 1st January 1950 as your date of birth.
- 1. No savings
Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship. Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so. To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.</p>
- 3. Mortgage debts
Recent research from <a href="http://globalcare.aviva.co.uk/">Aviva</a> found that 17% of over-55s are still paying off a mortgage, with an average of £63,555 left to clear. And figures from equity release lender More 2 Life suggest that more than 100,000 over-65s are still struggling to pay off their mortgages. The pre-recession popularity of interest-only mortgages and the poor performance of linked investment vehicles, as well as the average age of a first-time buyer rising to 35, are among the reasons why. But meeting monthly mortgage repayments during retirement can have a big impact on day-to-day living costs such as food and household bills. Ways to avoid being caught out include taking out a mortgage over a shorter term that leaves you well clear by retirement age and overpaying on your mortgage when you can. If it is too late for that, downsizing could be an option, while equity release plans could also be worth a look.</p>
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- 4. Deal with default notices
<p>A default notice is note that a lender puts on your credit file if you fall behind with your payments. It is a warning sign to future lenders about your reliability to repay credit and could mean that they will be less likely to lend to you or will increase the interest rate.</p>
<p>If the default notice is incorrect, perhaps because you have repaid the loan in full or did not take out the credit and suspect that you have fallen victim to fraud, you can apply to have a default notice removed. A default notices will only be removed if it is factually incorrect – not simply because you are embarrassed by it.</p>
- 4. Huge care costs
The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.</p>
- 5. Fraud
Older Britons are often targeted by unscrupulous criminals - especially if they have a bit of money put away. For example, many over 50s were victims of the so-called courier scam that tricked into keying their pin numbers into their phones and handing their cards to "couriers" who visited their homes. It parted consumers from £1.5 million in under two years. Detective Chief Inspector Paul Barnard, head of the bank sponsored dedicated cheque and plastic crime unit (DCPCU), said: "Many of us feel confident that we can spot fraudsters, but this type of crime can be sophisticated and could happen to anyone." The same is true of boiler room scams that target wealthier Britons with money to invest, offering "once-in-a-lifetime" opportunities to snap up shares at bargain prices. Tactics to watch out for include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.</p>
- 6. Unpaid taxes
The average UK pensioner household faces a £111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, according to figures from MetLife. And every year in retirement adds an extra £5864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household. You can be forced to go bankrupt if you fail to pay your taxes, so it is vital to factor these costs into your retirement planning.It is also important to check that you are receiving all the benefits and tax breaks you are entitled to if you want to make the most of your retirement cash.</p>
- 7. Rule changes
Even the best laid plans can be derailed should the government change pension rules - especially for those already in retirement. Take income drawdown. About 400,000 individuals have set up their pensions on this basis that allows them to keep their fund intact while drawing an income, rather than buying a poor value annuity. The income they can take is therefore linked to the 'GAD rate' – set by the Government Actuary's Department and determined by the prevailing yield from a 15-year Government bond (gilt). But despite 15-year gilt yields falling sharply, the government last year slashed the maximum income that could be drawn down from 120% to 100% of the GAD rate due to fears that savers were depleting their pension pots too quickly. Many pensioners have seen their incomes plunge by more than 50% as a result - and there is very little they can do about it.</p>