Pension Reform Changes Financial Planning


Pension is the light at the end of the tunnel for retirees, who earn the funding through years of employment. Pensioners count on the money to carry them through the years following retirement, so when it comes time to cash in, they expect to reap the full benefit of their labours. Uncertain economic times, however, have led to some changes in retirement funding.

Although many workers approach retirement age with multiple pensions, some provided by private employers, others rely on State Pension to keep them in the black during retirement. Chancellor George Osborne recently announced pension reform as part of the 2015 budget. The changes are expected to impact select pensioners. Understanding your pension rules and regulations enables you to maximize your benefits and properly plan your financial future.

Collecting Basic State Pension

State pension can be collected once you have reached State Pension age. For men, the threshold is currently 65 years of age. Women’s State Pension age, on the other hand, is in the process of being adjusted upwards, from age 60 to age 65. Additional legislation has been enacted, however, raising mandatory pension age to 66 for both men and women. This change is slated to be fully implemented by 2020.

In 2007, revised limits were once again placed on State Pension age, requiring pensioners to reach age 68 before seeking pension benefits. This change was to have been executed by 2046, but subsequent legislation has altered the course for pensioners. The Pensions Act 2014 imposes 67 as the mandatory State Pension age for men and women seeking retirement benefits beyond 2028.

Once you’ve found your place on the pension timetable, it is easy to track changes to the pension age, but there are other distinctions to account for, as well. Basic State Pension rules apply to those reaching State Pension age through April 5th, 2016. To collect the full Basic Pension, which currently stands at £113.10 each week, you must log thirty years’ worth of National Insurance contributions. You are eligible to collect pension with fewer years of accumulated payments, but your weekly benefit is reduced accordingly.

New State Pension

Those reaching State Pension age on or beyond April 6th, 2016 are eligible for the New State Pension, rather than the Basic State Pension. The new pension replaces the old scheme, but is administered in much the same way as it has traditional been managed. To qualify for payments, you must log at least ten years of National Insurance payments, unless special circumstances apply.

Like the old model, the new pension amount rises annually by a few percentage points to account for cost of living increases. The benefit is scheduled to be no less than £148.40 per week, though the precise amount has yet to be determined. The new pension can be combined with personal pensions and workplace pensions, as well as other savings and investments, as part of a comprehensive personal finance strategy. To help plan for retirement success, many people use web-based resources that offer advice and information about money management such as Readies.

Lifetime Allowance Reduced

Laying out the 2015 budget, Chancellor Osborne announced reductions in the maximum allowable lifetime pension contribution. Calling it “unsustainable”, the £1.25m lifetime allowance was reduced to £1m. Under the new terms, wealthy savers will be impacted the most, influence about 4pc of pensioners. The annual allowance remains unchanged, and starting in 2018 the lifetime figure will be adjusted upward each year to account for inflation. Tied to the Consumer Price Index (CPI), the adjustment will help offset inequities experienced by some pension candidates.

In addition to changing the lifetime allowance, Mr. Osborne also announced revised rules governing annuities. Under the new guidelines, pensioners have greater flexibility collecting their payments. And they are allowed to sell existing annuities in order to pursue greater returns on their retirement investments.

Retirees lean on a number of financial resources to cover expenses. In addition to investments and Individual Savings Accounts (ISA), most people over 65 rely on some form of pension. The rules are changing however, so it is up to you to stay current with rules governing your State Pension. As schemes change, you may need to adjust your personal financial strategy to maximize pension benefits.