When it comes to living the good life, most of us dream of retiring early, with a tidy nest-egg in the bank and plenty to spend doing the things we love after years of hard work. Whether you’re eager to travel the world in your private jet or treat yourself to a brand new mansion, complete with heated pool, everyone has their own vision of what retired life will be like, but in order to make the most of your finances and ensure that you’re well set-up for the future, it’s important to know where you stand with your pension.
Over recent years, the UK pension system has undergone a number of dramatic changes, with legislation written and rewritten repeatedly thanks to longer life expectancies and evolving rights when it comes to equality and quality of life. Some of these changes often go unnoticed by many until it’s too late to make contingency plans, and while many people now have substantial private pensions and investment portfolios squirreled away, your state pension is still set to make up an important part of your retirement fund, so it pays (quite literally!) to know where you stand.
As state pension retirement ages continue to rise, it’s now more important than ever to plan ahead and ensure that you’re comfortably set up for a long and happy retirement, regardless of this, so if you plan to put your feet up a little earlier than 66, you can do that by making savvy choices with your money in the lead-up to your desired retirement date.
In the meantime, let’s take a look at how state pensions have changed over the years, how we can expect them to transform in the future, and what all of it means for you.
The birth of the state pension
The very first state pension dates all the way back to 1908, when men were allowed to retire at the age of 70. At the time, life expectancy for them was only 40, while women generally enjoyed a slightly longer life, at 43 – so if you do the maths, it’s clear that not many people made it beyond their working years. In fact, only one in every four people were lucky enough to reach retirement age, and even then, had little support to see them through their golden years, and little time in which to enjoy putting their feet up. At this point, the average number of years in retirement for men was minus 30, which speaks volumes!
However, the situation had improved somewhat by 1925, when the first contributory scheme involving employers was introduced, and although married couples had to wait until they were both 65 to draw their pensions, it was a considerably better outlook than previously. By this point, life expectancy had risen by around ten years, which meant that for the first time, some were able to enjoy their retirement. However, even then, the average number of years in retirement was still in the minuses. -10 for men and -6 for women, to be precise, which meant very few people, even then, were hitting the required age.
In 1940, the retirement age for women was lowered to 60, while men still had to hold out a little longer, drawing their state pensions at 65. It was then that the Old Age and Widows’ pension arrived, too, heralding the arrival of more opportunities for women. It was only then that the average number of years in retirement made it out of the minuses, at least, that is, for the women. In the 40s, they were enjoying around 5.2 years of their pensions, yet men were still falling short of the required age.
By 2007, things had changed considerably, with the future of the British state pension system mapped out for many years ahead. It was declared that the state pension age, for both men and women, would rise to 66 between April 2024 and April 2026, then 67 between April 2034 and April 2036, before finally increasing to 68 between 2044 and 2046. The days of enjoying a long and happy retirement together, it seemed, were numbered – despite the ever-increasing average life expectancy for both men and women.
Even so, we had finally began to see both men and women enjoying longer retirements by now, with an average of 14.2 years for men and 17.2 years for women marking a dramatic change since the early years of state pensions.
In 2020, the rise in formal state pension age has set the bar at age 66, but with numbers set to go up and up, there’s never been a more important time to have a back-up plan.
If you’ve ever thought of starting an investment portfolio, then now is a great time to start. With state pensions no longer the key to the long and happy retirement most dream of, taking matters into your own hands and investing your fortune wisely is a better way to go.
Need some advice on a pension claim?
Speaking of taking matters into your own hands, when the time comes for your retirement, you have to make sure that you weren’t mis-sold your pension. That being said, you must only ever get pension advice from a qualified IFA, and only seek guidance on a pension claim from the FCA, FSCS or a reputable claims management company like Expert Pension Claims.