The State Pension will be the bedrock of your entire retirement. Here’s why:
As you approach retirement, you’ll need to give some serious thought as to how you’ll use your savings, pensions, and investments to simultaneously support yourself and achieve your future goals.
Alongside the money you’ve diligently set aside, you should also remember to factor in the State Pension to these calculations.
This guaranteed sum provided to you by the government can be extraordinarily useful as the basis for a retirement plan that helps you to target your goals for the future.
Find out how the State Pension works, and why it can play a crucial part in your retirement plan.
Up to £185.15 a week from the “new” State Pension
Firstly, it’s useful to know how much you can currently expect to receive from your State Pension when you reach the State Pension Age of 66 (set to rise to 67 by 2028).
It’s important to note that the State Pension amount typically increases each year, so these figures are for the 2022/23 tax year only. Read more about the increases to the State Pension later on in this blog.
If you’re yet to reach State Pension Age, that means you’ll be entitled to the “new” State Pension. As of 2022/23, you’ll generally receive £185.15 a week (£9,627.80 a year) from the new State Pension, if you have a sufficient National Insurance record.
You’ll need a minimum of 10 qualifying years of NICs to receive any new State Pension, and at least 35 years to be eligible for the full amount.
You may get more than the new full State Pension if you would have had over a certain amount of Additional State Pension under the old rules (see below).
You can check your National Insurance record using the government website, or we can do this for you at Britannic Place.
Meanwhile, if you’re already retired, you may receive the “basic” state Pension, depending on your age.
You’ll receive the basic State Pension if you are:
A man born before 6 April 1951
A woman born before 6 April 1953.
In the 2022/23 tax year, you’ll receive £141.85 a week (£7,376.20 a year) if you’re eligible for the basic State Pension.
To be eligible for the basic State Pension, you must have at least 30 years of qualifying National Insurance contributions (NICs).
It’s worth noting that you may receive more than the standard basic State Pension if you also receive the Additional State Pension.
While there’s no fixed amount for how much you can receive, Additional State Pension will be calculated based on how many years you paid National Insurance (NI); your earnings; whether you opted (or “contracted”) out of the scheme; and whether you topped up your basic State Pension between 12 October 2015 and 5 April 2017.
In this case, you may receive more than the £141.85 weekly amount.
A guaranteed sum that provides a solid basis for your retirement plan
Assuming you receive any State Pension based on the above, you’ll be entitled to up to £185.15 a week – a total of £9,627.80 a year.
Obviously, this amount is unlikely to be enough on its own to entirely sustain your lifestyle in retirement, while also allowing you to do the activities you want.
Even so, the fact that it’s guaranteed means you never have to worry whether you’re going to receive it or not, making it ideal as the bedrock of your wider retirement plans.
This is not the case for your other investments or pension savings. For example, stock market fluctuations might affect the value of the money you use to live in retirement, which could temporarily reduce how much you have to hand.
Meanwhile, your State Pension will continue to roll in uninterrupted. That means you’ll always have this money to live on as a basis for food and other compulsory bills, even if markets don’t perform as expected.
Additionally, the State Pension typically rises in value each year in line with wider economic circumstances. This will see your State Pension income have a similar amount of spending power year-on-year, even if the cost of living increases.
All in all, using your State Pension income as the bedrock of your plans means you’ll always have money to live on, no matter what happens.
The State Pension is usually protected by the “triple lock”
As you saw above, the State Pension is designed to rise each year, depending on what happens in the wider economy.
Each year, the State Pension is protected by what’s known as the “triple lock”, the government’s commitment to increasing the State Pension to keep the amount in line with wider economic circumstances.
Under the triple lock, the government typically increases the amount by one of these three metrics, whichever is highest:
A flat 2.5% increase
Average earnings year-on-year from May to July
Inflation as measured by the Consumer Price Index (CPI) up to September.
However, you may have noticed last year that the government suspended the commitment to the triple lock.
This was done on the basis that average earnings had been driven artificially high, reaching 8% when the workforce returned after the Covid-19 lockdowns and subsequent economic stagnation.
Ultimately, it was decided that this was not a representative amount to base the increase on, although the government did increase it by 3.1% to keep it in line with inflation.
This leaves the government with a very interesting conundrum this year. As the Office for National Statistics reports that inflation has reached 9% in the year to April 2022, and LBC reports that it could reach 10% before the end of the year, will the government honour the commitment to the triple lock this time round?
Interestingly, as reported by FTAdviser, Chancellor Rishi Sunak did commit to the triple lock on 26 May in front of the House of Commons, meaning the State Pension could well see a 10% increase in 2023/24.
Decisions like these should give you additional confidence that the government do look to protect pensioners by monitoring and increasing the State Pension amount over time.
Speak to us
Whether you want to find out more about your State Pension, or you just want to check in on your progress towards your retirement goals, please do get in touch with us at Britannic Place.
Email email@example.com or call 01905 419890 to find out more.
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.
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.