Could your State Pension Age be determined by your postcode?

In December 2021, the Department for Work and Pensions (DWP) announced that they would be reviewing whether the State Pension Age should be different depending on life expectancy.

The State Pension Age is 66 in the 2021/22 tax year, set to rise to 67 in 2028. Upon reaching this age, pensioners with at least 35 years of qualifying National Insurance contributions (NICs) will receive the full amount of State Pension, currently £179.60 a week.

However, this review could change these plans considerably. Firstly, the review will consider increasing the State Pension Age to 68 in 2037, rather than between 2044 and 2046 as originally planned.

Additionally, it’s possible that the DWP will stagger the State Pension Age based on where individuals live, so as to reduce it in areas with lower life expectancy.

So, find out why your postcode could determine your State Pension Age, and how you can still achieve your ideal retirement age.

Life expectancy differs by postcode by up to 21 years

The logic behind the DWP’s review is fairly sound. As average life expectancy differs greatly depending on where you live in the UK, so do your State Pension payments.

That means those in more affluent areas tend to receive more of their State Pension, even if they’ve made the same number of qualifying NICs.

Tortoise show this in a rather stark example: while a woman in Westminster can expect to live to age 87 on average, a woman in Blackpool has a life expectancy of just 79 years.

Assuming they had made sufficient NICs in their working lives and retired at age 66, that means a woman living in Westminster would receive a State Pension for 21 years of retirement.

The State Pension amount typically increases each year in line with inflation or wider economic circumstances. But, if it were kept at its current level throughout this 21-year period, this woman would receive a total of £196,123.

Meanwhile, a woman in Blackpool would receive her State Pension for just 13 years, a total of £121,409. That means a difference in life expectancy of just eight years makes a £75,000 difference to how much these women would receive in State Pension.

Similarly, the Times noted a King’s College London study that found the biggest disparity in life expectancy based on postcode in the UK to be 21 years.

This gap was found between women in an affluent borough of Camden, north London, where life expectancy is 95 years, and an area of Leeds with a life expectancy of 74 years.

In State Pension terms, that represents a difference of nearly £200,000 in what two women living in these areas could receive.

3 ways to achieve the retirement age you want

The DWP’s review will finish in May 2023, and it’s possible that they could decide to further delay the age at which you receive the State Pension in your area.

Of course, just because the State Pension Age could change, it doesn’t mean you can’t still target an earlier retirement age, no matter where you live.

Indeed, research by insurance provider Aviva found that one in four Brits who want to retire early aim to do so by age 60.

So, if you’re one of the individuals looking to retire before the standard age, here are some strategies you could consider to achieve the retirement age you want.

1. Clear debts, including your mortgage

Firstly, try to be debt-free by the time you finish working. High-interest debt can be a serious drain on your finances, particularly if you have to start paying it from your pension.

That’s why it can make sense to clear these sooner rather than later, allowing you to retire at your desired age without having to worry about making these payments.

Similarly, mortgage repayments can put a serious strain on your pension, particularly if you retire at 60.

If your monthly repayments are £700 and your mortgage doesn’t finish until you turn 70, that would mean 10 years of making repayments from your pension – a total figure of £84,000. That means it could be important to pay your mortgage off sooner, so you won’t have this burden later on.

Clearing these debts can allow you to exclusively use your pension to live on and achieve your retirement goals.

2. Review your pension contributions

If you’re still working, a goal of earlier retirement may make it worthwhile trying to give your pension pot one last push with additional contributions to boost it before you begin drawing from it.

Increasing your pension contributions can allow you to make the most of available tax relief, while also giving you the chance of generating investment returns on your savings.

You’re likely at your highest earning potential at this point of your career too, which may make you eligible for higher- or additional-rate tax relief on your contributions.

Of course, bear in mind that the value of your pensions investments could fall as well as rise.

3. Use the value in your property

Another avenue you could explore is using the value in your property, either by downsizing to a smaller, cheaper home, or by using equity release.

There may be thousands of pounds tied up in your home, and so accessing some of this value to fund your retirement can be an effective strategy.

Bear in mind that equity release will reduce the size of your estate and could affect your eligibility for means-tested benefits.

Make sure you seek financial advice before using this strategy.

Speak to us

If you’d like to find out more about the proposed changes or achieving your ideal retirement age, please speak to us at Britannic Place.

As your financial planner, we can help you refine your financial strategy to ensure that you’re able to live the kind of retirement you want.

Email or call 01905 419890.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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