Although a State Pension has been available in some form or other for well over a century, the entitlement has been subject to its fair share of changes.
In particular, the last few years have played host to some highly significant tweaks, with the introduction of a new flat rate in 2016 (currently £175.20 a week) and rises in the State Pension Age.
A rise to age 66 for both men and women, which began in December 2018, will be complete by this October. A further rise to age 67 will occur between 2026 and 2028, and a rise to age 68 has now been announced for between 2037 and 2039.
Yet that is most unlikely to be the end of the story. Even before the COVID-19 crisis, it had been widely predicted that some of the younger generations would end up not receiving a State Pension until they were well into their 70s.
This is looking all-the-more likely now that the Government desperately needs to find ways of saving money to combat the economic damage caused by lockdown. Other subtle changes may also be introduced soon.
For example, the State Pension is currently protected against inflation by the ‘triple lock’ – which means it will rise by the highest of 2.5%, the average percentage increase in UK earnings or the percentage increase in the Consumer Price Index.
Employers should ensure that employees are kept fully up to date with all such adjustments and also encourage them to check whether they will be entitled to the full flat-rate State Pension amount – as this will depend on having paid or been credited with 35 years of National Insurance (NI) contributions.
Such checks can be carried out easily enough via the following link: www.gov.uk/check-state-pension.
Furthermore, it is important that employees are made aware that, even if they don’t qualify for the full amount, they might be able to increase their entitlement by topping up their NI contributions.
Another very important message to get across is that even those who qualify for the full State Pension are most unlikely to find it sufficient to fund a comfortable retirement on its own.
Additional private pension provision will probably be necessary, and this will usually need to involve contributions well beyond the mandatory auto-enrolment minimums.
Exactly how much will be needed will vary from case to case, according to factors such as an employee’s income and retirement objectives, and Chase de Vere can provide your workforce with useful guidance and advice on the subject.
We can offer everything from generic guidance via workshops and seminars to one-to-one regulated face-to-face personal financial advice. The latter can be funded either by employer or employee or by a combination of both.
Whichever route you choose, in addition to funding considerations, employees would be kept in the loop about any new regulations affecting private pension provision, because it is not only the State Pension that is subject to change.
For example, the Government has recently confirmed proposals originally announced in 2014 for the minimum age at which a private pension can be accessed to increase from 55 to 57 in 2028.
This could be yet another factor that impacts on the age at which someone chooses to retire. But the sad fact of the matter is that the retirement funding shortfalls of many employees are currently so serious that, whatever the regulations and whatever their ideal preferences, they will not be able to afford to retire at 55, 57 or even 67.
This is not just a problem that potentially affects employees. If they are unable to retire when they want to it can have a major impact on their employer’s succession planning.
Employers who make it a high priority to provide employees with pensions education and advice are therefore indulging in a fair amount of enlightened self-interest.
Content correct at the time of writing and is intended for general information only and should not be construed as advice.