In the Jane Austen novel Emma, the main
character, Emma Woodhouse wittily describes the difference between being rich
and being poor in old age.
Emma was published in 1815, but in principle her
comments still hold today. Those with enough money can find their later
years some of the most fulfilling of their lives. Those who are short of
money can find them difficult and depressing.
A Brief History of the State
Pension
The original state pension was introduced in
1909. Unsurprisingly it has seen quite a few changes since
then.
Starting in April 2016 the existing state
pension will be changed to the new state pension. As the new state
pension is a means-tested benefit the amount received, if any, depends on your
National Insurance contributions. You are likely to need at least 10
years' worth of payments to claim any state pension. You will need at
least 35 years' worth of payments to claim the maximum amount.
How Do I Calculate My Pension?
The easiest way to calculate your state
pension is to get an estimate from the gov.uk website. You can also apply
for a National Insurance statement, which will show if there are gaps in your
payment record. These may have been for perfectly legitimate reasons and
be completely legal, but they may still impact your future pension.
If this is the case, you may be able to undo,
or at least limit the damage, by making additional NI
contributions.
You can also have NI contributions credited
to you if you are in receipt of certain benefits. This could be
particularly useful to people taking time out of work to raise children or to
care for elderly relatives. Again, you can check if you are eligible for
NI credits on the gov.uk website.
Can I Rely on the State
Pension?
There are two parts to this
question.
The first part is how likely it is that there
will continue to be a state pension.
The second part is whether or not it will be
enough to live on.
There are no guaranteed answers to either
part of the question. It should, however, be possible to make some
reasonable guesses about the second part.
In short, you need to think seriously about
the sort of lifestyle you want to have in retirement. Then you need to
start costing out your plans. Of course, some aspects of your life may be
substantially cheaper in retirement. For example you may have paid off
your mortgage. You may also be able to stop buying a season ticket to
travel to work or to give up your car.
You may, however, get a surprise at just how
many expenses you will still have in retirement. For example, if you own
your own home you will still need to maintain it. That's even before you
start thinking about actually having fun in your retirement.
Voluntary Pension Contributions
Could Make All The Difference
Under the auto-enrolment scheme, all eligible
workers are automatically enrolled into a workplace pension scheme.
As a part of this scheme, workers make
pension contributions automatically out of their wages. These
contributions benefit from tax relief.
Employers also make contributions.
There are therefore obvious benefits to being a part of a workplace pension
scheme.
There is, however, the obvious drawback that
pensions contributions reduce the amount of money a person has available in the
here and now. As the scheme is entirely voluntary, everyone needs to take
their own decision based on their own personal circumstances.
It is, however, arguably impossible to
overstate the importance of having adequate retirement savings in place.
Does anyone really want to spend their later years in poverty?
For more information please do not hesitate to
contact the team at Ward Williams Financial Services Ltd on 01932 830664 or
by email on wwfs@wardwilliams.co.uk.
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