If you’re claiming the State Pension, the good news is that it’ll increase in the new tax year. It could mean you have some extra money to spend on luxuries or that you can reduce how much you’re withdrawing from your Personal Pension. Even if you have other retirement provisions, your State Pension is likely to be an important part of your retirement income.
The State Pension for 2020/21
Millions of pensioners will receive a 3.9% pay rise in April 2020 thanks to the triple lock guarantee. For pensioners receiving the full weekly State Pension, the increase equates to £343.20 annually. That may not sound like a lot, but it helps your retirement income keep pace with inflation and maintain your spending power.
|Weekly State Pension
|Annual State Pension
|2019/20 tax year
|2020/21 tax year
As mentioned above, the rise is thanks to the triple lock guarantee. This protects the State Pension and means payments are increased each year. The rate of growth is whichever measure is the highest from:
- Consumer Price Index (CPI), which tracks inflation
- Average earnings growth
- Or 2.5%
As September’s CPI measure was 1.7% and average earnings growth was recorded at 3.9%, it’s the latter the State Pension rises by. The triple lock guarantee has been in place since 2012, guaranteeing that pensions will rise by at least 2.5% each tax year.
The table below demonstrates how the State Pension has increased over the last nine tax years and which measure has been used.
|State Pension increase
Receiving a portion of the State Pension
In order to receive the full State Pension, you must have a full National Insurance record.
If you reached State Pension age before April 2016, this means you need 30 years of National Insurance contributions. If you retired after this point, you need 35 qualifying years of contribution and at least ten to receive any State Pension at all.
Should you have missing years on your National Insurance record, you’ll receive a portion of the State Pension. Your State Pension will still increase annually, based on the percentage rises of each year, but in terms of extra money in your pocket, it will be less than those with a full State Pension.
If you’ve yet to claim your State Pension but would like to understand what you may receive, you can get a forecast here.
Why your State Pension is important
When planning your retirement, your State Pension alone is unlikely to provide you with enough income to meet all aspirations. But that doesn’t mean it’s not an important part of the retirement planning process.
The State Pension can provide a useful foundation for building your retirement income. As it’s guaranteed for life and reliable, it’s an income source that can provide you with security. The triple lock guarantee can also help retirees stave off the impact inflation has on their income.
If you have a Defined Contribution pension and don’t intend to purchase an Annuity, this is particularly useful. As you may be accessing your pension flexibly and leaving the bulk of your savings invested, having a secure source of income can provide you with peace of mind in retirement. A State Pension might not be enough to meet aspirations, but it can ensure the essentials are taken care of.
Whatever your retirement income and other provisions, you shouldn’t dismiss your State Pension when planning your future.
Please get in touch if you’d like to talk to us about your retirement plans. It can be challenging to bring together all the different income strands, but we’re here to provide assistance. We’ll work with you to create a clear retirement plan that puts your goals at the centre.