According to the dictionary, retirement is ‘…to withdraw from one’s position or occupation or from active working life.’ Financial independence and retirement usually go together – like strawberries and cream. We are usually able to retire when we have income that isn’t earned by working – either savings or a pension fund.
This is a frequently asked question but one which isn’t easy to answer. It all depends on who is asking the question, their financial situation, and their age. If you have enough money to fund your retirement, you’re able to stop working and enjoy more leisure time at any age. If you’re reliant on your state pension, it’s a different matter – and quite difficult to work out who is entitled to pension and at what age.
This is something of a ‘moving feast.’ With the maturing of the ‘Baby Boomer’ generation – that is people born between 1946 and 1964, in the post war years, there are now more people aged over 60 in our population than there are under 16’s. With this in mind, life expectancy has also increased and we’ll all spend a larger proportion of our adult lives in retirement than previous generations.
When the state pension was introduced in 1948, a 65-year old could expect to spend 13.5 years in retirement – about 23% of their adult lives.
In 2017, a 65 year-old could expect to spend 22.8 years in retirement – about 33.6% of their adult lives. The Office for National Statistics reveal that by 2042, 12.4 million people will be over state pension age – an increase of 33% over a period of 25 years.
The Pensions Act 2014 requires the Government to review the state pension age every six years. Currently, the state pension age depends on when you were born.
The current basic state pension age for both men and women is 66 and 2 months for people born in 1955 and this will gradually rise by 2 months a year until it reaches 67.
It’s not good news for younger people… proposals indicate those approaching pension age in 2034 will not get a state pension until they are 67 and in 2044, the age will increase to 68 – and the Government has plans to bring this forward.
There are two types of state pension, which applies to you depends on whether you reached state pension age before the new state pension came into force – the new state pension and the old basic state pension.
This is a regular payment from the Government based on your previous National Insurance contributions and you receive this is you reached state pension age on or before April 2016 – that is, if you are a woman born before 5 April 1952 or a man born on or before 5 April 1951.
A basic state pension based on your previous National Insurance Contributions
An additional state pension also based on your National Insurance contributions but this takes into account your earnings and whether you claimed benefits too.
If you have fewer than 30 years of contributions you’ll get 1/30 of the full state pension amount for each year of contributions.
The new state pension is a regular payment from the Government that most people can claim in later life. You can claim this at state pension age if you have at least 10 years National Insurance contributions and are:
A man born on or after 6 April 1951
A woman born on or after 6 April 1953
In 2019, the full state pension is in the region of £129.20 to £168.60 per week and whether you get the full amount depends on your qualifying years of National Insurance payments. There are a number of pension income calculators online – have a look at www.agepartnership.co.uk or www.gov.uk – to check your state pension.
Yes, you can claim your state pension and keep working – but bear in mind:
Any money you earn won’t affect your state pension but it may affect your entitlement to other benefits such as pension credit, housing benefit and council tax support
Your state pension is taxable so when added to your earnings it may put you into a higher tax band
When you reach state pension age, you won’t have to pay National Insurance anymore, even if you keep on working.
Just because you won’t get a state pension, it doesn’t mean you can’t retire. Personal and workplace pensions can usually be claimed from the age of 55. If your pension is enough to fund your retirement, then you’ll be able to retire early.
If you retire at 55, assuming you have an average life expectancy you will need your assets to produce an income for a longer period than someone who retires later – so retiring early means you need to have other sources of income you can use.
You can claim your pension if you continue to work – it may be worth deferring your pension until you stop work and then you’ll receive larger pension payments when you do claim. If you’re looking to claim a personal or workplace pension while working, other rules may apply – and this could depend on the terms of your workplace pension you agreed when signing up.
Again, this depends on you and your circumstances. You need to think about basic living costs – mortgage if you’re still paying one, service charges, hobbies, travel, car or home repairs and long-term health care.
“One suggestion is that you’ll need 70% of your pre-retirement income to live comfortably.”
The Pensions Advisory Service is an independent organisation that gives free information and advice on pension planning, including state, personal, workplace and stakeholder schemes.
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