Changes to the Pension System

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Pension Reforms

The Government's White Paper into pension reform has resulted in the largest proposed change of the pension system for 50 years. A number of changes are going to be made and phased in over the next few years; this means that depending on your current age, the reforms will have different impacts upon you. Here is a quick guide to what to expect, whatever your age:

28 or Younger

If you are 28 or younger the pension system you experience will be completely alien to what we know as the moment. Firstly, you will not be able to collect your pension until your 67th birthday at the very earliest, and if you are 27 or younger you will not be able to collect it until you are 68. This does not necessarily mean that you will have to work longer, merely that if you want to go into early retirement you will have to have the savings in place to compensate for the late state pension age.

On the flip side the link between average earnings and the state pension is to be restored, currently this is not the case and has been resulting in an income gap between pensioners and the working population. By restoring the earnings link people retiring around 2050 will be £40 a week better off, based on today's price.

Between 29 and 37

You won't be able to collect your state pension until you are 67 years old, but you will benefit from the restoration of the link between the state pension and earnings. By your retirement age you may also benefit from the National Pension Savings Scheme which will involve both you and your employers making compulsory contributions unless you choose to opt out. The scheme is an attempt to persuade you to save more money.

Between 38 and 46

You will be able to collect the state pension only one year later than those who are retiring currently. Also, if you have an interrupted record of National Insurance Contributions, possibly from taking time off to have and raise children you will still receive a full pension because of a change in the number of years it takes to qualify for a full state pension. This move is designed principally to help women, who have experienced a lower pension income on average than men.

Aged 47 and Over

There will be no change in the age that you can receive your state pension, though there will also be the benefit of the link between pensions and earnings as mentioned above, though if you are currently very near retirement age there may not be a huge amount of difference. The earning link is not due to be restored until the next parliament. In addition the women's retirement age is due to rise to match that of men between 2010 and 2020.

Whilst the pension reforms will make things a lot better in the system as a whole, and allow greater provision for pensioners, it is still a good idea to have your own pension scheme. Specialist pensions providers such as Legal and General can offer better payouts for your retirement alongside other financial products like over 50s life insurance, and offer more consistency and security than, for example, pension schemes in certain big companies. It is worth taking some time to familiarise yourself with all the basics of pensions because there is nothing more important than making sure you are properly provided for when it comes to your retirement.