Upcoming changes to state pension in 2022
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One measure in particular can realise big gains for people’s state pension of over 10 percent.
While not for everyone, deferring claiming the state pension has a big upside for those who are patient.
Deferring means that an individual simply chooses not to claim their state pension when they reach 66, the current state pension age (SPA).
Research has previously found that a quarter of over-65s are completely unaware of this option.
Levels of unawareness only get worse among younger generations and nearly a third of people aged 55-64 are unaware of the option to defer.
These people may be missing out on an option that, if right for them, can deliver a massive boost to their retirement income.
The decision to defer the state pension may be taken alongside a decision to continue working, but this is not always so and people may choose to run down other forms of pension first in order to boost their state pension when the time comes to claim it.
There are two systems which apply to people who defer claiming their state pension and which one someone fits into depends on when they reached their SPA.
The first is for people who reached their SPA before April 6, 2016.
For them, the state pension will increase every five weeks it is deferred.
Every five weeks will see a boost to the state pension of one percent, which works out to 10.4 percent a year.
People who reached their SPA before April 6, 2016 will also be able to take the boost to their state pension as a lump sum if they wish.
The second system, for those born on or after April 6, 2016 is, however, less generous.
In this system, the state pension will increase by one percent for every nine weeks it is deferred, working out at around 5.8 percent a year.
Even the smaller boost is bigger than the boost triple lock gives to pension most years and if someone is on the new full state pension and defers for one year at 5.8 percent, this means an additional £10.40 a week.
That’s more than £500 extra a year.
The full new state pension is worth £179.60 a week and the full basic state pension is worth £137.60 a week.
But people may not be entitled to the full amount and, indeed, many have to live off as little as £100 a week or less, it has been reported.
This is because the state pension is calculated according to the National Insurance Contributions (NICs) someone made throughout their working life.
To be entitled to the full amount, someone will have to have made 35 years’ worth of NICs.
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