State Pension Age Raised To 66 Years: What All You Need to Know

Summary

• The state pension age has been increased to 66 years following which individuals will be required to wait till age of 66 years to exercise pension benefits
• The present rise in the state pension age had been announced in the year 2010 by the then Chancellor of the Exchequer George Osborne
• As per the government directives, the full state pension in-line with the new state pension age has been formulated at £175.2 per week

The state pension age (SPA) has been increased to 66 years following which the millions of individuals looking forward to enjoying the benefits of pension will be mandatorily required to wait till they attain an age of 66 years. The new state pension age of 66 years has come into effect from, 6 October 2020, itself. The government has hiked qualifying years for the state pension to 66 years from the earlier ceiling of 65 years and has also indicated towards a possibility of a further rise in the state pension age in the days ahead.

Significance of Retirement Corpus

People invest a proportionate amount of money into retirement funds, pension funds and other related financial instruments that can be used for building a sizable corpus intended to be utilised after retirement. Almost all such retirement and pension funds keep a regular tab on their respective exposure to equity, equity-linked schemes and other volatile assets to safeguard the retirement pool from excessive volatility and to reduce the uncertainty from the fund.

State Pension

The government-backed savings plan, as well as other privately held investment schemes which are designed for building a retirement corpus, are more or less aligned to the state pension age prescribed by the government. Therefore, a complete withdrawal of funds from the scheme is only allowed after an individual reaches the state pension age (SPA). However, there are certain circumstances under which a person is entitled to withdraw partial funds out of the retirement corpus by paying the applicable tax on the money withdrawn.

Withdrawal Limit

According to the present guidelines, an individual willing to withdraw partial money out of the retirement fund can only do so after reaching an age of 55 years. After completion of the stipulated time frame, only a sum equivalent to 25 per cent of the retirement fund is permissible. Beyond the threshold of 25 per cent, any sum withdrawn does invite the taxes as per the applicable income tax laws. On the other hand, if the partial withdrawal request is placed before attaining the age of 55 years, a person is required to pay higher taxes on it.

The Reason for the Rise

The present rise in the state pension age had been announced in the year 2010 by the then Chancellor of the Exchequer George Osborne citing the growing life expectancy of the workers employed in the United Kingdom. All the qualified men and women will now start earning their respective weekly proportion of pension after attaining an age of 66 years. The individuals who have reached the qualifying age before, 6 October 2020, are likely to receive their pension according to the old state pension age structure.

New Benefits

As per the government directives, the full state pension in-line with the new state pension age has been formulated at £175.2 per week. On the contrary, the full state pension in 2020-21 for the individuals who have reached the state pension age before 6 April 2016 is £134.25 a week. Inferentially, the quantum of the state pension is dependent on the completion of qualifying years for receiving the state pension and the ongoing circumstances of a person.

Terms to Fulfil

Individuals who are willing to garner the full amount as per the new state pension age are required to fulfil certain criteria including but not limited to the completion of 35 qualifying years of national insurance. At least a minimum contribution of 10 years towards the national insurance is required to receive any basic amount. The amount of weekly pension is also dependent on the nature of private pension and the quantum & frequency of contributions made during the days one had been employed.

Possibility of Higher Pension

Individuals may receive a higher amount of money over the upper limit of basic pension, as a large section of people also allocates a definitive amount for building a second retirement corpus other than the government-aided state pension. The rise in the qualifying years for the state pension has been backed by the substantial growth in the life expectancies of people following which the government has been aiming to spread the qualifying years in the state pension age to 68 years in the coming years.

Challenges

Nevertheless, such increases in the qualifying years in the state pension age have been criticised by the masses as their chances of earning a regular stream gets delayed. Strong criticism has been received especially from the women born in the 1950s with some approaching the legal system to show their discontent. Further, there is a definite possibility of a delay in the disbursals of a weekly pension if a person is not having the prescribed number of qualifying years by the time of retirement.

The gaps or the shortfall in the qualifying years can be caused due to a number of reasons including seasonal unemployment, taking a sabbatical, taking off-from-work for a couple of years for childcare and other parental supervision or a no-work year due to prolonged illness. Individuals are entitled to make voluntary contributions, meanwhile, if they don’t have the specified number of qualifying years.

Moreover, the coronavirus pandemic-laden stress and the unforeseen disruption in the income streams of regular earners has created a middle-of-the-road void in the lives of many. The number of people chasing their private savings plan, or the money set aside for post-retirement usage has increased categorically. The government, with due regard to the middle-income earners and the daily wage workers, has attempted to subsidise the earnings of people by announcing certain measures including the Furlough Scheme and the Job Support Scheme.

According to the Universities Superannuation Scheme (USS), one of the UK’s biggest pension funds by assets under management, individuals have the option to take early retirement in USS if they are not willing to wait until the age of 66 years, but the benefits received before attaining the age of 66 years will be relatively less as compared to the benefits garnered after completion of the set time-frame. The benefits will be trimmed accordingly with the time one wants to exercise his or her emoluments under the retirement building scheme.