Major DWP state pension changes from Monday with pay rise and age change | Personal Finance | Finance

Several key changes to state pensions are taking effect from April, impacting both the income pensioners receive and the age at which some may retire. With the new tax year commencing on Monday, April 6, pensioners are enjoying a welcome boost to their income.

Under the triple lock guarantee, the state pension rises every April in line with whichever is the highest of total earnings growth in the year from May to July of the previous year, Consumer Prices Index (CPI) inflation in September of the previous year, or 2.5 percent.

This year’s 4.8 percent increase – in line with wages – means that people receiving the full new state pension (for those reaching state pension age on or after April 6 2016) will see their income increasing from £230.25 to £241.30 per week. Those on the full basic state pension (the core amount under the old state pension system) could see their weekly payment rise from £176.45 to £184.90. Many pensioners do not receive the full state pension.

Pensions minister Torsten Bell said: “After a lifetime of work and contribution, people deserve a decent retirement. Raising the state pensions faster than prices, ensuring it is a pension they can rely on, is how we make that a reality for millions.”

A further notable shift is also underway, with the state pension age beginning a phased increase, gradually climbing in stages from 66 to 67, affecting those newly entering retirement.

Zoe Alexander, executive director of policy and advocacy at Pensions UK, said: “The state pension age is rising for three reasons: improved life expectancy, to support the sustainability of the public finances and improving intergenerational fairness. People understandably want certainty about when they can claim the state pension and the upcoming rise in the qualifying age may be causing some confusion.

“Because the change happens in monthly steps, a single day’s difference in your birthday can shift your state pension age by weeks or months. You can check when you can claim your pension via gov.uk.

“Once you know your date, think about whether this creates a gap between when you plan to stop work and when the state pension begins. If it does, take a moment to plan ahead. A few simple checks today can make a real difference to your income and peace of mind later.”

Kirsty Ross, proposition director for People’s Partnership, the provider of People’s Pension, said: “The value of the state pension is essential information for millions of people, including those still in work, as it forms the foundation of retirement income for most savers.

“For those thinking about retirement, it’s also crucial to understand the age at which they can start claiming the state pension. For example, people hoping to retire early will need to plan how they will bridge the gap until their state pension kicks in.”

She noted that workplace pension schemes “provide planning tools, which will help their members work out whether they are saving enough via automatic enrolment or other pensions to achieve the kind of retirement they hope for”.

Rachel Vahey, head of public policy at AJ Bell, said: “While the increase in the state pension age to 67 will come as a shock to many, this is very much the beginning rather than the end of this story. Under current plans, the state pension age will rise again to 68 between 2044 and 2046.”

She warned that future governments may “need to bring this forward – and possibly set out plans to increase the age further still”. The Institute for Fiscal Studies (IFS) revealed last week that raising the state pension age delivers considerable savings to public finances, with the increase from 66 to 67 anticipated to save approximately £10 billion annually by the end of the Parliament.

However, it also cautioned that historical evidence suggests a higher state pension age reduces incomes and drives up poverty rates amongst those affected, with the impact felt most severely by individuals already out of employment and dependent upon working-age benefits.

Laurence O’Brien, senior research economist at the IFS, said: “It makes sense to increase the state pension age in response to the public finance pressures caused by an ageing population, as the fiscal savings are significant. But it does reduce household incomes and therefore leads to higher poverty rates for affected age groups. And the people most affected are often those least able to adjust through staying in work or drawing on other savings – for example, those already out of work or in poor health.”

Tips from Pensions UK as state pension age changes

1. Small variations in birth dates can create substantial differences in when the state pension becomes available. The transition from 66 to 67 will not affect everyone simultaneously. Rather, it rises in monthly stages.

Individuals born on or after April 6 1960 may become eligible at 66 and one month, 66 and two months, and so forth, right through to those born on or after March 6 1961 with a full state pension age of 67.

2. While many people have a general understanding of when the state pension begins, the increase might take some by surprise. The Government calculator can be used to verify state pension ages.

3. Some individuals may discover they face a “financial gap year”. Should someone intend to stop working at 66 but find their state pension age is higher, they could face an unexpected gap between their final pay cheque and their first state pension payment. This may be an opportune moment to review savings and emergency funds, or consider whether working an additional few months could help bridge that shortfall.

4. Many people may also need to factor in other rule changes as they plan their retirement. For example, the normal minimum pension age (the age from which someone may be able to access their workplace pension) rises from 55 to 57 in April 2028. The system is not straightforward, but checking your state pension age and making a simple plan could be a good place to start.

5. Remember that retirement planning is not a “set once and forget” exercise. A once‐a‐year check in on pension forecast, savings, and state pension age can prevent shocks later in life.

Pensions UK regularly refreshes its retirement living standards, which assist people in gauging whether they are on course to enjoy the lifestyle they anticipate in retirement. Midlife “MOTs” or action plans can equally help individuals sense-check whether their retirement ambitions are achievable. Once people establish their intended retirement date, identify any shortfall and put a straightforward plan in place, they can take full control of their financial future.