Pensions

The State Pension is the money you get from the Government to provide you with an income in retirement. This might sound straightforward enough but the system is actually quite complex.

The system can be a bit of a minefield but it’s important to understand it as your State Pension entitlement could have a big impact on your future retirement lifestyle.

In this article, we will briefly cover how the State Pension works, how to calculate the level of State Pension you are likely to receive in retirement and ways in which you could get a better deal from the Government.

What is the State Pension?

State Pension rules changed in April 2016 which made them more difficult to understand. Before this happened, people received a “basic” State Pension when they reached retirement age and in some cases, certain individuals received an “additional” State Pension.

So, if you reached retirement age before April 2016 then in the 2019-20 financial year, the basic State Pension making its way to your account should be £129.20.

If, however, you are set to retire after April 2016, your State Pension will operate under the new rules and you should receive a “single-tier” State Pension when you reach retirement age (sometimes referred to as “new State Pension”).

In 2019-20, the amount you receive under the full, new State Pension is £168.60 (about £8,767.20 per year). We highlight the word “full” because you may not actually receive this amount as it is dependent on your personal circumstances.

If, for example, you have not built up 35 years of qualifying National Insurance contributions (NICs) then you are unlikely to receive the maximum £168.60 available. On the other hand, if you have accumulated an “Additional State Pension” then you may well receive more than this.

It is worth mentioning briefly that it has not been possible to build up any additional state pension (sometimes called the “Second State Pension” or “State Earnings-Related Pension Scheme”) after April 2016. However, you may have prior to this date, as you approach your retirement age after 2016.

You might be wondering what your “retirement age” is (i.e. the point where you can start claiming your State Pension). In 2019-20 it is between 65 and 66 for everybody which is set to increase in future years. So, for instance, in 2028 it will be 67 and by 2039 it will have risen further to 68.

How much will I get?

As mentioned above, how much money you get from the Government in retirement depends on a range of factors, including:

-Whether you reached retirement age before April 2016. Certain groups of people get more, or less, than others under the old system compared to the new one.
-How many years of NICs you have built up (remember, you need at last 35 to get the full, new State Pension).
-Your pension credit status. This an extra, means-tested source of income for retired people who are struggling financially. You must meet certain criteria to be able to claim this benefit, which we will come to below.
-Any Additional State Pension you may have accumulated.

The other important thing to remember is that to get any kind of State Pension, you must have at least 10 years of qualifying NICs.

How to get a better State Pension deal

Clearly, if you are still working and will be for a good few more years, then one important way to get the best pension deal is to make sure you build up at least 10 years of NICs throughout your employment.

Better still, try to meet the 35 qualifying years to ensure you become entitled to the full, new State Pension when you reach your state retirement age. In general, those in full time employment earning over £166 a week should be making NICs automatically via their employer, under the Pay-As-You-Earn system (PAYE).

Looking forward, it may well be that you will fall short of the 35 years’ worth of NICs through your future employment. Should this be the case, it is possible to “top up” some of your previous years where you did not make a qualifying year (e.g. because you lived abroad), by making voluntary NICs. Another option could be to consider deferring your whole State Pension, which can sometimes result in you receiving a higher income from the Government when you do eventually claim it.

You can check for gaps in your NI record on the government’s website.

For expectant parents, you may be wondering what could happen to your NICs if one or both of you intend to take time off work to look after your child.

This situation can become quite complicated but generally speaking, if you are over the age of 16 and your child is less than 12 years of age, you should receive “Class 3 National Insurance credits” if you are receiving Child Benefit. These credits allow you to fill gaps in your NI record, even if you are not working.

Another option couples may wish to consider is making voluntary NICs on behalf of a spouse or partner so they can build up their own full new State Pension record.

Final thoughts

We hope this has helped with the basic aspects of the State Pension which may affect you but there is a lot more to consider when factoring your State Pension into your overall retirement plan so please do get in touch if you wish to explore this further.

You have spent years building your wealth to support your family and lifestyle. It would be a great shame to lose it to scammers, unscrupulous businesses and high-risk investments.

Yet every year that is exactly what happens. Since 2014 at least £42 million has disappeared from people’s pension pots due to fraud. Worryingly, the Financial Conduct Authority (FCA) says this is likely to be a fraction of the scale of the problem.

Safeguarding your hard-earned family wealth is one of our top priorities at FAS. In this guide, we are going to shed light on some of the latest scams so that you are armed with more knowledge to protect yourself.

The two main areas we will cover are pension scams and unregulated investments.

Pension Scams: What to Watch For

The UK government finally made cold calling about pensions illegal in January 2019 – after years of consultation. This is a welcome move.

This new law was brought in due to pensioners receiving fraudulent calls. People who were tricked by these calls lost, on average, about £91,000 in 2018 and some were even left penniless in retirement.

Despite the ban, however, there are still companies making unsolicited calls to people in the UK about their pension. Sometimes these businesses are based off-shore, far away from the reach of prosecution under British law. So you still need to be careful.

Please note that pension scams do not merely come in the form of unsolicited phone calls about your pension. They can also involve unexpected texts, emails or social media messages.

Be especially wary if you are in your 40s, 50s or 60s as these are prime targets for scammers.

As a general guide:

Be immediately suspicious of any company that contacts you out of the blue about your pension(s). End the call if you do not recognise them.

If a caller claims that they can help you access your pension before the age of 55, then it is almost certainly a scam. End the call and do not give out any personal information.

Should a caller try to pressure you into acting quickly (due to a time-sensitive “offer”) then do not proceed any further with the conversation. Authorised Financial Planners are not allowed to pressure you into important financial decisions, so a stranger on the phone is certainly not allowed to either!

If you are promised a deal which sounds too good to be true, then it almost certainly is. The main scam to watch out for here are promises of high investment returns with little-to-no investment risk. Almost always, investments with the potential for higher returns also carry a higher level of risk.

Be wary of anyone offering a free pension review. This might be an attempt by a fraudulent person to access your financial information.

If the company you are speaking to is not FCA-authorised, then you should certainly not entertain a conversation with the caller. Either check the FCA register for the company name if you are at all uncertain about who you are dealing with or contact us.

Remember, a company is only allowed to contact you about your pension if they are FCA regulated and they have an existing relationship with you.

Unregulated Investments: Be on the Lookout

The tactics and issues surrounding pension scams are very similar to the dangers posed by people who try to sell you unregulated investments.

If someone contacts you unexpectedly about a “great investment” opportunity, and you have never spoken to them about it before, then you need to be very careful.

Generally speaking, we would urge you to end the conversation as soon as possible. Make sure you do not give away any personal information over the phone and try to record the name of the business that the caller claims to represent.

Remember, a company must be regulated by the FCA to provide the vast majority of financial services in the UK. If the business is not regulated, then you know not to deal with them further.

However, there is a chance that a caller might indeed represent an FCA-registered firm, but they are trying to sell you an “unregulated product”.

These financial products are high-risk and are not covered by the FCA’s rules or the Financial Services Compensation Scheme. That means you are unlikely to get any money back if you invest in the product and things go awry.

Once again, resist any claims which sound too good to be true (i.e. high returns and low / no investment risk) as well as any pressure to make quick decisions.

Be especially wary if the investment “opportunity” concerns bamboo, hotels, cryptocurrency or storage as these are unregulated products. For a full list of unregulated products, please see the FCA website here.

The Value of a Financial Planner

If there’s one valuable service that a good Financial Planner can provide, it is to give you a reliable “sounding board” and “firewall” against potential scams like the above.

Should someone contact you out of the blue about your pension or an investment opportunity, then you can ask us about it. We will be able to quickly detect whether or not it was a scam and advise you accordingly.

The value of a long-term, trusting relationship with a Financial Planner cannot be understated. It is certainly more reliable than someone you do not know, contacting you unexpectedly, offering grandiose promises and pressuring you to act against your best instincts!

If you are concerned about a recent call, email or message you received then please get in touch.