More than half (53%) of people in their 50s fear running out of money in retirement, as they have been the most likely to face job and income losses of any age group during the coronavirus (COVID-19) pandemic (23%), according to a new report[1].

In April 2024, the state pension rose by 8.5% to £11,502.40 a year for post-2016 retirees. However, according to new research[1], one in seven (14%) retirees receive less money from the state pension than expected. This highlights the need for more information about the payments people can expect to receive from the government later in life.

Over a fifth (22%) of retirees also said they entered retirement unaware of how much they’d receive from the state pension, while a quarter (26%) didn’t know how to calculate their entitlement. One in ten (10%) retirees also said they didn’t realise that their National Insurance contributions determine the level of state pension paid in retirement. Another 10% of retirees said it wasn’t easy to determine how much state pension they’d receive in later life.

Gaps in pre-retirement knowledge
The research also shows there is a wide knowledge gap among those in the key pre-retirement age group[2]. Over a fifth (22%) of over 55s who are not yet retired do not know their state pension age, and just three in ten (29%) of this age group know how much the state pension is worth. Additionally, the research found that the understanding of the state pension system is poor across all ages, with participants struggling to explain basic aspects of how the system works.

The study revealed that knowledge gaps have led to several misconceptions, the most prominent being that each person’s National Insurance contributions are kept in a personal pot to be accessed when they reach state pension age when, in reality, it is funded on a pay-as-you-go system by current taxpayers[3]. This was a strongly held belief that impacted people’s views about the fairness of the system.

Recent pension increases and future concerns
The state pension remains a hot topic. Under the triple lock, while the increase in pensioners payments in April is a welcome boost for millions, concerns about its sustainability for future generations have been raised.

It’s worrying that many UK adults lack knowledge about specific state pension details, such as the value of their entitlements and when they qualify for payment. However, the state pension is a significant part of most people’s retirement income, and it’s clear that greater prominence and more accessible information are needed so people feel confident and can plan for their financial future.

What is the state pension?
The state pension is an amount paid to you every four weeks by the government once you reach state pension age. However, not everyone can get the full state pension, which might not be enough to live on alone. Therefore, it’s important to know what yours might be when you can claim it and how it will stack up with your other retirement savings.

What is the current state pension amount?
The current full state pension amount is £221.20 a week for the 2024/2025 tax year, totalling £11,502.40 for the year, an increase of 8.5% from the previous tax year. Remember that the amount you’ll get depends on your National Insurance record and how many qualifying years you have. You’ll usually need at least ten qualifying years on your National Insurance record to get any state pension.
You’ll need 35 qualifying years to get the new full state pension if you don’t have a National Insurance record before 6 April 2016. In some circumstances, it’s possible to top up your National Insurance record, and your state pension forecast will highlight when this is an option.

What is pension credit eligibility?
If you’ve reached state pension age and you’re on a low income, it’s worth checking if you’re eligible for pension credit. This tax year (2024/25), pension credit usually tops up your weekly income to £218.15 if you’re single or your joint weekly income to £332.95 if you have a partner. Arming yourself with accurate information about your state pension is essential for effective retirement planning. Understanding how your National Insurance contributions affect your entitlement can help you make informed decisions about topping up your record or exploring additional retirement savings options.

Government resources such as the state pension forecast are invaluable tools that can provide a clearer picture of what you might receive. Engaging with these resources early and regularly can prevent unwelcome surprises. Given the state pension’s central role in retirement income for many, it is critical to ensure you have all the relevant details. This proactive approach not only aids in better financial management but also offers peace of mind as you approach retirement age.

When can I receive the state pension?
UK adults can currently receive the state pension from age 66, but this is set to rise to 67 by 2028 and again to 68 between 2037 and 2039. You can use the Government’s calculator to check when you’ll reach state pension age.

If you don’t want to take your state pension immediately, you can also choose to defer it. This means you could get larger payments when you do start claiming it, which might suit you depending on your circumstances.

How do I claim my state pension?
You won’t get your new state pension automatically – you must claim it. You should get a letter no later than two months before you reach state pension age outlining what you need to do. If you have not received an invitation letter but are within three months of reaching your state pension age, you can still make a claim, and the quickest way to do this is online.

When will the state pension be paid?
After you’ve made a claim, you will receive a letter about your payments. These are usually paid every four weeks into an account of your choice, and you are paid in arrears. The payment day depends on your National Insurance number, although you might be paid earlier if your normal payment day falls on a bank holiday.

Will the state pension be enough?
There’s a significant gap between what you receive from the state pension and what you may need or want in retirement. The state pension alone falls short of even a minimum standard of living in retirement, according to the Pensions and Lifetime Savings Association (PLSA).

Because it only starts in your late 60s, it won’t help to support you if you want to retire earlier. It should, therefore, only form part of your overall retirement plan, and so it’s important to fully understand how much you might need to save in your personal or workplace pension plan to be able to afford the retirement you want.

Source data:
[1] Boxclever conducted research among 6,350 UK adults for Standard Life. Fieldwork was conducted 26th July – 9th August 2023. Data was weighted post-fieldwork to ensure the data remained nationally representative on key demographics.[2] Phoenix Group research, January 2024. Survey conducted by Opinium among 2,000 UK adults.[3] Phoenix Insights (2023) An intergenerational contract: Policy Recommendations for the future of the State Pension

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

Finances impacted
The number of those over 55 dipping into their pension early has increased this year, as some have struggled to pay for essentials during the pandemic. The report reveals that one in three people in their 50s (37%) have seen their finances impacted during the pandemic, more than any other age group. Faced with job losses and their pension contributions fall or stop altogether, 13% now believe they will never be able to afford to give up work.

To tide them over, an increasing number of over 55s have been taking advantage of pension freedoms and accessing their retirement savings early. In the first three months of 2021 alone, 383,000 people withdrew money from their pension, a 10% jump on the same period last year.

Company scheme
As well as putting their retirement plans in jeopardy, some people may face an unexpected tax Income Tax bill if they continue saving into a pension after they have withdrawn money from a pension. This could happen for anyone made redundant who then re-joins the workforce and is enrolled into the company scheme.

Current rules state that savers can put £40,000 into their pension each year (including employee and employer contributions) and receive tax relief on these savings. Basic rate taxpayers receive 20% pension tax relief and higher-rate taxpayers 40% pension tax relief.

Living costs
However, once someone accesses their pension, no matter how small the amount they take out, Money Purchase Annual Allowance (MPAA) rules means the amount they can save in a year and still obtain tax relief falls significantly to just £4,000 per year. Anything they pay in over this limit will attract a bill from the taxman.

The later middle-aged have not enjoyed the ‘offsetting’ benefits of the pandemic – such as a cut on commuting costs and reduced leisure activity costs – that other age groups have, with only one in six (16%) reporting a decrease in living costs compared to a quarter (25%) of those in their 20s.

At the same time, one in five workers (17%) in their 50s are self-employed, compared to only 12% of 25–49-year-olds.

Challenging time
With less job security, a lower income on average and well-publicised issues accessing government support, COVID-19 has made it a challenging time to be self-employed. More than half of people who work for themselves have seen their finances suffer, compared to 25% of permanent employees.

While we’re right to be worried about the lasting impacts of this pandemic on all age groups, those in their 50s need to act urgently to get their savings back on track before retirement, having been forced to use their existing savings just to get by. 3

Source data:
[1] Scottish Widows Retirement Report, the research included general questions on pensions and retirement planning and was carried out online by YouGov Plc across a total of 5,059 adults aged 18+. Data was weighted to be representative of the GB population. Fieldwork was carried out between 23rd March and 3rd April 2021 through a 15-minute online survey. 5,059 interviews were carried out. The sampling criteria were based on four key metrics: age, gender, region and social grade.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION WHICH ARE SUBJECT TO CHANGE IN THE FUTURE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.