Too many bury their heads in sands over pensions

Pru warns that many people will miss out on full entitlement, writes Jeff Salway
Many women, even those in work, will miss out. Picture: GettyMany women, even those in work, will miss out. Picture: Getty
Many women, even those in work, will miss out. Picture: Getty

Experts have warned that many people in or near retirement are set to fall foul of the rules determining their entitlement to the £155-a-week universal pension coming into force on 6 April 2016.

Almost a fifth of adults due to retire after that date are likely to miss out on the full payment, according to a report this week by Prudential. Many are still unaware of the changes, including 47 per cent of Scots, the study revealed.

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Under the rules, workers retiring after 5 April 2016 and earning at least £153 a week must have 35 years of national insurance (NI) contributions under their belt for entitlement to the full single tier payment. At least ten qualifying years of contributions are needed to get any state pension, and a proportionate level of state pension is paid to those with between ten and 35 qualifying years.

Seven in ten Scots born after 6 April 1950 expect to have worked for at least 35 years by the time they retire, the Prudential survey found, the second highest proportion in the UK.

Changes to the eligibility rules will inevitably result in differences in the amount people receive, said Tim Fassam, pensions policy expert at Prudential, even though the overhaul is designed to make it easier for people to work out the state pension they’ll get.

“It is therefore important for everyone to obtain all the relevant information so that they can make an informed decision, if they need to make up additional qualifying years through working longer or making voluntary contributions,” said Fassam.

Women are especially likely to miss out, with 21 per cent expecting to fall short of the NI contributions needed to qualify, compared with 14 per cent of men. Many women have incomplete NI records because they have taken career breaks to raise children. People not earning £153 a week can claim equivalent credits if they have been unable to work due to illness or disability; receive jobseeker’s allowance or employment and support allowance; claim child benefit for a child under 12; or if they are a carer.

The entitlement gap can also be bridged by making additional “class three” NI contributions if they don’t have the 35 years required. Just 14 per cent of those who don’t think they’ll meet the 35 year target plan to make extra NI payments, however.

Tom Munro, director of Tom Munro Financial Solutions in Larbert, warned that many will pay the price for a general apathy towards later life planning.

“The old adage of ‘I’ll do it tomorrow’ is commonly heard, but, without exception, unless you’re a member of a well-run final-salary scheme you really have to start planning well in advance.”

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A simple first step is to establish your current level of state pension entitlement.

You can request a forecast from The Pension Service ( or 0845 3000 168), which will set out your expected entitlement and your number of qualifying years.

“Any shortfall can be made-up through class 3 voluntary contributions and setting up a monthly direct debit often takes care of this,” said Munro. “Making these contributions during long periods out of work will ensure full state pension entitlement later in life.”

Munro also suggests making sure any savings and investments you have are held in tax-efficient and cheap income-producing funds and wrappers.

The findings from Prudential came a week after another report suggested that many Scots could run their pension savings down within just five years of retiring. Savers north of the Border told a survey by True Potential that they needed an annual retirement income of £24,364. Yet current savings levels would support that income for just five years, with the average Scot setting aside just a quarter of the amount they see as necessary for a comfortable retirement.