Retirement is a milestone that many look forward to, and understanding when and how to collect your pension in the UK is a crucial part of planning for your future. In this comprehensive guide, we’ll walk you through every step of the process, providing detailed information on the UK retirement age, eligibility criteria, how to apply, and where to find essential resources.
What types of State Pension are there?
The new State Pension came into effect in 2016, replacing the old State Pension. The pension that applies to you will depend on whether you reached State Pension age before the new State Pension came into effect (see the table below).
What is the new State Pension?
The new State Pension, introduced in 2016, is a regular payment from the government that most people can claim in later life.
You can claim the new State Pension when you reach State Pension age if you are:
- a man born on or after 6 April 1951
- a woman born on or after 6 April 1953
If you were born before these dates you’ll get the old State Pension instead.
You’ll need 10 qualifying years on your National Insurance record to receive a State Pension. This means 10 cumulative years of any of the following:
- You were working and making National Insurance contributions
- You were getting National Insurance credits
- You were paying voluntary National Insurance contributions
Find out more here.
What is the old State Pension?
The State Pension is a regular payment from the government based on your previous National Insurance contributions.
The old State Pension includes two parts:
- 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.
The old State Pension is sometimes referred to as ‘the basic State Pension’.
Determine your UK retirement age
The next step in planning your retirement is knowing when you can start collecting your pension in the UK. The UK retirement age varies depending on your birthdate and gender, so let’s break it down:
| Gender | Date of birth | Pension | Retirement Age |
| Female | Before 6 April 1953 | Old State Pension | 65 |
| Female | After 5 April 1953 | New State Pension | 66 |
| Male | Before 6 April 1951 | Old State Pension | 65 |
| Male | After 5 April 1951 | New State Pension | 66 |
State Pension age is currently 66 years old for both men and women. You can check when you’ll receive your State Pension using the GOV.UK checker.
You won’t get your State Pension automatically – you have to claim it.
You should get an invitation letter from the Pension Service around 4 months before you reach State Pension age. You’ll have the choice to claim it then or to defer it and receive higher payments in the future instead.
You can read more here:
How your State Pension will work depends on your age and gender?
Calculate your State Pension amount
Your State Pension amount depends on your National Insurance contributions. The more qualifying years you have, the higher your pension will be. To estimate your pension entitlement, use the online State Pension calculator on the official government website.
It’s essential to have a clear picture of your financial situation.
- Calculate your expected retirement income from all sources, including the State Pension, private pensions, and any workplace pensions.
- Use the government’s budgeting tool to create a budget that anticipates how your spending might change during retirement.
Apply for your State Pension
Once you’ve reached your UK retirement age and confirmed your eligibility, it’s time to apply for your State Pension. You can apply up to four months before you want to start receiving it. The most convenient way to apply is online through the government’s official portal.
What you need to claim your state pension:
- The date of your most recent marriage, civil partnership or divorce.
- The dates of any time spent living or working abroad.
- Your personal or joint bank or building society account details.
How to apply:
To apply for the new State Pension online Go to www.gov.uk/new-state-pension/how-to-claim
You can apply for the new State Pension by telephone:
Telephone: 0800 731 7898
Textphone: 0800 731 7339
Welsh language: 0800 731 7936
Welsh language textphone: 0800 731 7013
If you cannot hear or speak on the phone, you can also use Relay UK:
18001 then 0800 731 7898
Relay UK used to be known as Next Generation Text (NGT)
The line is open Monday to Friday 8 am to 6 pm.
A friend or family member can call us for you if you cannot use the telephone.
Pension contributions
Contributions to pensions can come from various sources:
Employee: You can choose to contribute a percentage of your salary to your pension.
Employer: In many workplace pensions, your employer will also make contributions.
Government: Tax relief is provided on pension contributions, meaning the government adds money to your pension savings.
Auto-enrolment
Auto-enrolment is a government initiative that requires employers to automatically enrol eligible employees into a workplace pension scheme and contribute towards it. This is aimed at encouraging retirement savings.
Accessing your pension
There are various options for how you can take your pension, including:
- Taking a lump sum
- Purchasing an annuity (a regular income for life)
- Keeping your money invested and making withdrawals as needed
Taxation of pensions
Pensions are subject to various tax rules, depending on how you choose to access your pension savings. For example, you can usually take 25% of your pension pot tax-free, but the rest is taxable.
Claiming your private pension
Private pensions, along with workplace pensions, play a crucial role in enhancing your retirement income. To make the most of these opportunities, it’s essential to thoroughly understand the terms and conditions. Knowing when and how you can access your funds is key. Seeking expert financial advice is also highly recommended to ensure informed decisions about your private pension.
Workplace Pensions
Employers in the UK are now required to establish workplace pensions, also known as occupational pensions, to provide retirement benefits for their employees. These pensions come in two primary forms:
- Defined benefit (DB) schemes: Also known as final salary pensions, these guarantee a specific income in retirement based on your salary and years of service with the employer.
- Defined contribution (DC) schemes: In these plans, both you and your employer contribute to your pension savings, and the amount is then invested. The size of your pension depends on the amount contributed and the investment performance.
Personal pensions in the UK are individual pension schemes, usually defined contribution plans, available to anyone, including those who are self-employed. They are designed to help individuals save money for retirement and offer flexibility in terms of contributions and investment options.
These are private pension schemes that you can set up independently of an employer, or through some workplaces. They are typically managed by insurance companies, banks, or investment firms. You can choose from various investment options, and the eventual pension payout depends on the contributions made and investment performance. Personal pensions generally include:
- Stakeholder pensions: These are low-fee, flexible personal pensions with minimum standards set by the government.
- Self-invested personal pensions (SIPPs): These offer a wider range of investment options compared with traditional personal pensions, allowing you greater control over your pension investments.
A self-invested personal pension (SIPP) is a personal pension scheme which allows individuals to make their own investment decisions from the full range of investments approved by the HMRC.
SIPPs are “tax wrappers”, allowing tax rebates on contributions in exchange for limits on accessibility.
Based on client feedback and demand, InvestEngine has been working on providing SIPPs as a product offering. We are happy to announce that clients can now pre-register for our SIPPs here.
It’s worth keeping an eye out for the latest updates on its release and more in our Community Forum and Insights page.
Additional Retirement Benefits
- Check whether you’re eligible for additional benefits, such as Carer’s Allowance, Housing Benefit, or Council Tax Reduction.
- Explore other retirement benefits you may be entitled to, such as Pension Credit, Winter Fuel Payment, or Housing Benefit. These can provide valuable financial support during your retirement years.
- Individual Savings Accounts (ISAs) for Tax-Free Investments:
In addition to pensions, ISAs provide another valuable avenue for tax-efficient investing. InvestEngine offers a range of ISAs that allow you to invest up to a certain annual limit, tax-free. This can be a valuable addition to your retirement strategy, providing flexibility and additional tax benefits.
For more detailed information on ISAs and how they can complement your retirement planning, visit InvestEngine’s ISA page.
Create a Comprehensive Retirement Plan
Bringing all the pieces together into a cohesive plan is crucial.
- Construct a retirement blueprint that integrates your budget, income sources, pension access timeline, and any additional eligible benefits.
- Regularly review your plan to adapt to changing situations and ensure a comfortable retirement.
Manage Outstanding Debts
Evaluate your existing debts and establish a strategy to handle or clear them before entering retirement.
Inheritance and Pensions
Depending on your circumstances, there may be opportunities to pass on your pension savings to your heirs, potentially with tax advantages.
Protect against pension scams
During your retirement planning, it’s vital to remain vigilant in shielding your savings from potential pension scams. Here are essential tips on identifying and avoiding such scams:
- Exercise Caution with Unsolicited Offers
- Be wary of unexpected phone calls, emails, or text messages regarding your pension. Legitimate entities typically don’t initiate contact without your prior engagement.
- Confirm the Sender’s Identity
- Authenticate the identity of anyone contacting you. Scammers often pose as legitimate financial advisors or government representatives.
- Beware of Pressure Tactics
- Be alert to high-pressure tactics pressuring you for immediate decisions. Scammers aim to rush you into hasty actions.
- If It Seems Too Good to Be True, It Probably Is
- Exercise skepticism towards offers that appear exceptionally lucrative. Claims of unusually high returns or guaranteed investments should raise red flags.
- Consult the FCA Register
- Verify if the company or individual providing pension advice is registered with the Financial Conduct Authority (FCA). Utilize the FCA’s online register to authenticate their credentials.
- Seek Independent Guidance
- Prior to making any financial decisions, seek advice from an independent financial advisor. They can assist you in evaluating the legitimacy of investment opportunities.
- Stay Informed
- Keep yourself abreast of prevalent pension scams and the latest scamming techniques. MoneyHelper offers valuable resources on detecting and reporting scams.
- Report Suspected Scams
- If you suspect you’ve been targeted by a pension scam, promptly report it to the relevant authorities, such as Action Fraud or the Pension Scams Industry Group (PSIG).
By maintaining vigilance and adhering to these guidelines, you can shield your retirement savings from potential scams and ensure a more secure financial future. For further insights on recognizing pension scams and safeguarding your retirement, check out MoneyHelper’s guide on spotting pension scams.
Keep up with changes
The rules and regulations surrounding pensions can change over time. Stay informed by regularly visiting the official government website or consulting with a financial advisor to ensure you make the most of your retirement benefits.
Seek professional advice
- Consult an independent financial advisor to navigate the complexities of retirement planning and pension choices.
- Additionally, consider utilizing the services of Pension Wise for guidance on personal pensions.
- Pension Wise is a government service that offers free and impartial advice on pension options. It provides information on how to access your pension savings and the consequences of different choices.
Conclusion
Planning for retirement in the UK involves understanding your retirement age, checking eligibility, calculating your pension amount, and applying for your State Pension. Additionally, consider your private pension options and explore other available benefits. By following this comprehensive guide and staying up-to-date with any changes in regulations, you can secure a more financially stable and enjoyable retirement in the UK.
To explore tax-efficient investment opportunities, consider InvestEngine’s Individual Savings Accounts (ISAs) and Self-Invested Personal Pensions (SIPPs). For further insights and updates on retirement planning, visit our blog and join our vibrant Community.
Empower yourself with the right knowledge and resources to embark on a fulfilling retirement journey.
Important information
Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply.
This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.
Tax treatment depends on personal circumstances and is subject to change, and past performance is not a reliable indicator of future returns.