Episode 9: UK State Pension - Is It Worth It? with Tom Pewtress and Carla Smart
Pension Specialist, Carla Smart, will be helping us take a look at the UK State Pension and addressing some big topics, like is it worth it?
Welcome along to this week’s edition of The Expat Investor Podcast, I’m Tom Pewtress – Head Of Global Partners, and today I will be joined by Carla Smart – our Pensions Specialist. Carla has been with the business a number of years and today she will be helping take a look at the UK State Pension and addressing some big topics, like is it worth it?
Last week I spoke with Ed Teasdale, who also referenced the UK pension environment after the announcement of the UK Autumn Statement but today I will be taking a deeper dive into the UK State Pension and what British nationals living abroad should be aware of.
Upon leaving the UK it is sometimes easy to forget that you may have paid National Insurance for many years which potentially has been contributing to a benefit due later on in life. Many people are unaware what that benefit may be, and some may not even be aware they have built up a benefit or not enough benefit in some circumstances.
Changing countries can be exciting and stressful all at the same time and often little things like National Insurance goes untouched for years. Especially if you are now residing in a new country where there is a new type of national insurance.
So Carla, I am going to welcome you to the show, thanks for joining me today.
No problem, thanks for having me.
Let’s understand some basic facts first then Carla about the UK State Pension, what can someone expect to receive in the future:
The amount you get depends on your National Insurance record.
The new full State Pension is currently £185.15 per week, (£9,627.80) and from April next year, this will rise to £203.85 per week. (£10,600 per year).
If you reached State Pension age before 6 April 2016, you’ll get a different amount under the basic state pension rules.
OK, and tell me what do I need to do in order to receive such a benefit?
You need to have 35 years in total to obtain the full State Pension. You need at least 10 qualifying years to receive anything at all.
You may be able to use time spent abroad to make up the 10 qualifying years. This is most likely if you’ve lived or worked in: the EEA, Switzerland, Gibraltar and certain countries that have a social security agreement with the UK
You can get more state pension by adding more qualifying years to your NI record.
Each qualifying year on your NI record after 5 April 2016 will add about £5.29 a week to your new State Pension. (£275 p.a.)
Starting amount may include a deduction if you were ‘contracted out’ Which basically means, that you paid lower national insurance and paid into a workplace or personal pension instead.
As I understand it though, there is potentially some changes on the horizon with regards to making up payments?
You have until 5 April 2023 to pay voluntary contributions to make up for gaps between tax years April 2006 and April 2016 if you’re eligible. After 5 April 2023 you’ll only be able to pay for voluntary contributions for the past 6 years. This may not be enough to qualify for a new State Pension if you currently have fewer than 4 qualifying years on your National Insurance record, as you need at least 10 qualifying years in total.
You may be eligible to pay class 2 or class 3 provided certain conditions are met.
And how much are these voluntary contributions going to set me back?
22/23 – Class 2 = £3.15 a week (£163.80 p.a.)
22/23 – Class 3 = £15.85 a week (£824.20 p.a.)
Effectively you could pay a one-off payment of £163.80 now and this will buy you an extra £275 per annum in retirement.
Most recently Jeremy Hunt committed to the triple-lock and pensioners will be receiving an increase of 10.1% to their state pension from April next year.
How can I find out how much I am due to receive from the government when I reach retirement age?
You can obtain a forecast by visiting https://www.gov.uk/check-state-pension
If you’re living abroad, read leaflet NI38 and fill in form CF83
Voluntary contributions do not always increase your State Pension – you should contact the Future Pension Centre to find out if you benefit from making contributions, you can also ask for a forecast.
What does it mean for someone looking to draw down?
In European Economic Area (EEA) countries, Gibraltar and Switzerland, you only need to claim your state pension in the last country where you lived or worked. Your claim will cover all EEA countries, Gibraltar and Switzerland. You do not need to claim for each country separately.
In countries outside the EEA (except Switzerland), you need to claim your pension from each country separately. Check with the pension service for the country where you’ve lived or worked to find out how to make a claim.
Amazing, so hopefully everyone now has a good understanding of where to go to get more information specific to them and how much it may cost them should they wish to continue to contribute to the UK State Pension. But I’m sure the big question on everyone’s lips; What does the state pension look like in the future?
In Nov 2018, the UK State Pension age for men and women was 65. Gradually increasing, it will be 67 by 2028. It’s always kept under review and may continue to change in line with life expectancy. In the recent Budget, Hunt announced a review of the state pension age in 2023. While Japan is proposing state pension age of 70. 50% of the population are retired. 12% of their workforce are over 65.
25 years ago, the average male in the UK could be expected to live to 78/79. Now it’s 83- 85, and 86 for women.
Because of this trend, it will become increasingly hard for nations to continue to afford paying these pensions. People living longer, not having enough children. Some believe it may not exist at all. With demographic changes, more people retired, fewer people working, there will be some tough decisions for governments.
With women living longer, they have a greater risk than men of facing problems when they come to retire. And with many taking breaks from employment to have or care for children, statistics show that women with the same income starting out basically end up with a lot lower workplace pension benefit.
Options for government include; increase the contribution, decrease the payment, increase pension age.
There is a chance the State Pension might not exist in the shape or form we have today.
Carla, I have taken enough of your time today, but I am sure this has been extremely helpful for our listeners out there today.
Some Key takeaways –
Obtain forecast – understand where you’re at.
If you see you have gaps and are eligible for voluntary contributions, from my point of view it’s potentially a relatively small investment to make and currently does provide good value for money.
I think it is really important not to rely solely on the State Pension, not only is it a modest income but due to the demographics of the country, is likely to change and take a different form in the future.
If you’re closer to retirement – naturally you will have a clearer idea of what to expect.
It’s certainly not all bad for younger people. Whilst we cannot know what the State Pension will look like in the future, the one thing young people have is time to start saving and building their own pot.
Once again, it’s a been a pleasure having you on the show today Carla. If anyone out there is seeking further help or assistance on the topic, please feel free to reach out to Carla via her email or drop us a message via our website, www.skyboundwealth.com
This was recorded on the 28th November 2022 and all information was correct at the time of recording. This podcast is for educational purposes only and is not a personal recommendation. If you’re unsure what’s right for you, you should seek advice. Past performance isn’t a guide to the future, and investments rise and fall in value so you could get back less that you invest.
Thanks for listening, goodbye.
Pensions Manager & Chartered Financial Planner
This was recorded on the 28/11/2022 and all information was correct at the time of recording. This podcast is for educational purposes only and is not a personal recommendation. If you’re unsure what’s right for you, you should seek advice. Past performance isn’t a guide to the future, and investments rise and fall in value so you could get back less that you invest. Thanks for listening, goodbye.