People in their 50s and 60s have been urged to review their pension pots after the Government announced major changes to the state pension. A retirement expert has called on individuals to "understand their own responsibility" to save for later life.
The changes follow Labour's announcement that it would alter the triple lock. Prime Minister Andy Burnham told the Labour Party conference that from 2030, the average earnings part of the triple lock would be removed.
Expert urges greater pension education
Hannah Martin, pensions expert and founder of Rich Retiree, said people often have a poor understanding of pension rules. She said: "There needs to be greater education in pensions in general. Too many people are unaware of how much state pension they will receive and when, whether they have enough National Insurance contributions to qualify for the full pension and if not, whether it's worth buying voluntary National Insurance years."
You typically need 35 years of National Insurance contributions to get the full new state pension, which currently pays £241.30 a week, or around £12,550 a year. Ms Martin said there is an even more basic issue people often do not bear in mind: "More importantly, people need to understand their own responsibility in saving for their retirement, how much they might need to live on, and how they can reach that figure."
Every £1 counts
She urged people to think about how paying into a pension can pay dividends over time. Ms Martin said: "We have little control over decisions the Government makes about the state pension, but we can ensure that we have enough to cover the lifestyle we want by taking action ourselves."
"Thanks to a combination of tax relief and compound growth, every £1 you invest in your pension has the potential to work hard for your retirement. Even someone in their 50s or 60s still has time to make a difference to their pension pot if they make it a priority."
Auto-enrolment "unlikely to build a big enough pot"
She said that auto-enrolment has been a positive step in getting more people saving into their pensions, yet "on its own it's unlikely to build a big enough pot for most people". Under auto-enrolment, if you work for a company, you are automatically enrolled into a pension scheme. You also pay in a minimum of the equivalent of 8 per cent of your earnings above £6,240 a year into the pot. This is often made up of a 5 per cent contribution from the worker and a 3 per cent contribution from the employer.
Ms Martin emphasised the need for better awareness when it comes to saving for retirement. She said: "Just a small amount of financial education, including the power of compound growth if people invest in pensions early in their working life, could make a significant difference to engagement levels and more adequate saving for retirement."
Other state pension changes
Two other changes to the state pension are coming up, one taking place now. The state pension age is increasing from 66 to 67, happening in stages between April 2026 and April 2028. The Government has also said it is bringing in a new policy, yet to be added to the books, so that people whose only income is the state pension without increments do not pay income tax on their payments. This will be in place by next April, when the full new state pension will rise beyond the £12,570 personal allowance, the most you can earn each year without paying income tax.
