Not only are we all working longer hours, but we’re also staying in work for longer too. The pension age has just risen yet again, and this time women are taking the hit as the state pension age raises from 60 to 66 in 2020, and then to 67 by 2028. This hike in the pension age could mean that thousands of women could end up around £9,000 out of pocket because their pensions do not take into account the rise in the official retirement age. Those close to the end of their careers right now are particularly at risk of losing out.
Add to that the fact that couples, where one partner reaches retirement age before the other, will also be hit hard by new changes means that baby boomers and Generation X’ers who are galloping towards their golden years could be seriously out of pocket.
Let’s start with a look at the changes to pension credits. The DWP (Department for Work and Pensions) has made changes to the pension pot that could mean pensioners with younger partners could end up losing their pension credits. That alone could mean a cut of as much as £140/week, which is a huge amount if your partner is on a low income. Pension credits are designed to top up the incomes of those who have reached pension age to make sure they have a reasonable amount to live on. As the pension age is also changing (another whammy for those just reaching retirement age), the changes to pension credits will be brought in line with the increase in pension age.
It could also have a knock-on effect for other benefits, as well as reduced council tax bills, and even cold weather payments. Overall, pension credits have been widely welcomed as they help those on the poverty line have a more comfortable lifestyle. However, with the change in pensionable ages, all of that could be in jeopardy.
Until now, pension credit has been available to couples where one partner has reached the pension qualifying age. Now that the government have effectively moved the pension goalposts yet again, from May 15 it will mean that both partners have to be of pension age before credits are paid. If there’s a big difference in ages, that could mean a couple losing out on thousands of pounds for years to come. Mixed-age couples will be able to claim universal credit, but that’s considerably less than the pension credit, and could still leave many older couples struggling to make ends meet. Some couples could be up to £7,000 a year worse off, so this is not an insignificant change.
The second blow is aimed squarely at women who are reaching retirement age – or so they thought. The government is set to increase the state pension age for women from 60 to 66 in 2020, and then up to 67 by 2028. However, that means that hundreds of thousands of women could lose out, as private pensions change how they move funds around. Previously, pensions were often moved into safer investments around 10-15 years before they expired. While offering less of a return, they were usually pretty secure. The system is known as ‘lifestyling’, and is common practice.
However, because of the change in the pension age for women, if a pension is ‘lifestyled’ too early (say seven years before the due date), the loss could hit almost £10,000 over the course of retirement. Again, this is a significant sum, and if you then combine it with the impact of the pension credit changes, there are some pensioners who could be forced to keep on working because their pension simply isn’t providing them with enough money to live on. Fortunate, then, that the pension age has gone up so significantly…
Don’t expect to get a ‘bridging pension’ to fill the gap, either, as there’s a strong possibility that these will end prematurely too. Overall, the future isn’t bright for baby boomers and Generation X’ers, who could suddenly discover that their pension is not only a lot further down the road than they thought it was, but that there’s very little in the way of a safety net to help them during those intermediate years, either.
If you’re worried about your pension, talk to a financial adviser or legal expert who specialises in personal finance and pension law.