For many people, the State Pension forms an important part of their retirement income. However, the age at which you can start receiving it is changing.
The State Pension age is currently 66, but it is gradually increasing to 67 between 2026 and 2028. Under current legislation, it is also due to rise to 68 between 2044 and 2046, although the timetable is regularly reviewed by the government, don’t be shocked when they finally announce it will be age 70.
If you have been working towards a particular retirement date, these changes could affect when your expected income begins. Understanding the potential impact early can give you more time to prepare and adjust your wider retirement plan.
Who will be affected by the rising State Pension age?
The increase from 66 to 67 will be phased in according to date of birth. Broadly, people born on or after 6 April 1960 may be affected, with the exact date they become eligible depending on when they were born.
Those born later may also be affected by the planned increase to age 68. However, as the State Pension age is regularly reviewed, younger people should avoid assuming that today’s timetable will remain unchanged throughout their working lives.
You can use the government’s State Pension age checker to find your expected State Pension date. It is worth checking this periodically, particularly if retirement is still several years away.
Could a later State Pension date create an income gap?
Your chosen retirement age and your State Pension age are not necessarily the same.
You might wish to retire at 60, 62 or 65, but your State Pension may not begin until you are 67. This could leave a period during which you need to support your lifestyle without that regular source of income.
For example, if you retire at 65 but cannot claim your State Pension until 67, your other pensions, savings or investments may need to fund two full years of expenditure. That could include essential household bills as well as holidays, hobbies and other plans for your retirement.
Even a relatively short gap can place additional pressure on your private retirement funds. Taking more money from them during the early years could also affect how much remains available later in life.
Alternatively, you may decide to continue working for longer, reduce your hours gradually or adjust your planned retirement date. The right approach will depend on your personal circumstances, priorities and financial position.
How to check your State Pension forecast
As well as confirming when you can claim, it is important to understand how much State Pension you may receive.
The government’s free State Pension forecast service can show:
- When you are expected to reach State Pension age
- How much State Pension you may receive
- Whether you could increase your forecast
- Details of your National Insurance record
You can also check your National Insurance record for missing or incomplete qualifying years.
Gaps do not automatically mean that paying voluntary National Insurance contributions will be beneficial. Your circumstances and previous pension arrangements can affect the outcome, so it is important to check whether a payment would actually increase your State Pension before proceeding.
Your forecast is an estimate based on current rules and your National Insurance record, rather than a guarantee. It should therefore be reviewed alongside your other retirement arrangements.
How could you bridge the income gap?
If your State Pension will begin later than your preferred retirement date, there may be several ways to fund the intervening years.
Workplace or personal pensions
You may be able to use income from a workplace or personal pension before your State Pension starts. However, the minimum pension age and the rules of your particular scheme will need to be considered.
Taking pension benefits earlier or withdrawing more during the gap years could reduce the amount available later. Pension withdrawals may also have tax implications, making it important to plan how and when income is taken.
ISAs and other savings
Cash savings and ISAs can provide flexibility because withdrawals from an ISA are normally tax-free. They may allow you to meet some of your expenditure without relying entirely on taxable pension income.
However, using savings earlier than expected could reduce the financial cushion available for emergencies or future costs.
Investments
Non-pension investments could also contribute towards the gap. Any withdrawals should form part of a carefully considered plan that accounts for investment risk, market conditions, tax and the length of time your money may need to last.
Employment or other income
Some people may choose to move gradually into retirement by reducing their hours, working on a consultancy basis or taking on a different role. Rental income, business income or other assets might also contribute, although each option carries its own risks and tax considerations.
Often, the solution will involve a combination of different income sources rather than relying on one pension or investment.
Why the State Pension is only one part of your retirement plan
The State Pension can provide a valuable foundation, but it should not be considered in isolation.
A wider retirement plan should bring together:
- Your intended retirement date
- Your State Pension forecast
- Workplace and personal pensions
- Savings and investments
- Other sources of income
- Your expected lifestyle and expenditure
- Tax considerations
- Financial provision for later life
It should also consider your partner’s position where relevant. Couples may reach State Pension age at different times, which could cause household income to change more than once during retirement.
At Lazenby’s Financial Services, our independent financial advisers help clients understand their existing pensions and investments and how these could work together to support their retirement goals. We can model different retirement dates and income sources to help identify a potential shortfall before it becomes an immediate concern.
Start planning before the gap arrives
A later State Pension date does not necessarily mean that you must delay retirement. It does, however, make advance planning increasingly important.
Checking your forecast and understanding your wider financial position can help you make informed decisions about when to retire, how to fund any gap and how to manage your income over the longer term.
If you would like help reviewing your retirement arrangements, visit our Pensions page or speak to the team at Lazenby’s Financial Services.
The value of pensions and investments can fall as well as rise, and you may get back less than you invested. Pension and tax rules can change, and their effect will depend on your individual circumstances
