Posted by

Lynn Graves, Senior Manager, Market Development, Scottish Widows

13 Sep 2016

As recent years have seen significant changes in the pension landscape, many employers have been focused on automatic enrolment and pensions freedoms. Wellbeing strategies may include financial education and guidance on these areas, supporting employees through the changes and helping them make good choices for better retirement outcomes. However, the changes in the State Pension are perhaps overlooked.

The vast majority of employees have an awareness of the State Pension, but it’s a bit more complex than some people appreciate, and though it doesn’t form part of workplace saving as such, pensions and the workplace are closely linked for many people, making employers well-placed to provide information. Furthermore, it’s important that customers take a holistic view of all their current and future finances, in order to adequately plan for retirement. Employers can play a big role in supporting this.

What’s changed?

Quite a lot! There’s a lot of detail in the changes, but the most important things to know are:

  • There’s a new single-tier pension for people reaching State Pension Age (SPA) after 6 April 2016. In 2016/17 this is worth up to £155.65 a week. You get the full amount if you have 35 years of National Insurance (NI) contributions or credits, proportionately less with fewer years, and nothing with fewer than ten years.  Those who have built up more than £155.65 before 6 April 2016 will have that entitlement preserved.
  • This is supported by a means-tested safety net for those on low incomes. The Guarantee Credit, currently £155.60 a week, will help top-up people without sufficient NI contributions, where other sources of income don’t bring them to this minimum level. Savings above £10,000 are treated as income.
  • The state pension entitlement can be increased by 1% for every 9 weeks it’s deferred. This is quite a drop from the previous system, where just 5 weeks deferral equalled a 1% rise.
  • The age at which people can take state pension is increasing to 68, for both men and women. This could rise further, as the government has committed to reviewing SPA in line with changes in life expectancy.
  • While there are some transitional arrangements, it will generally not be the case that someone can rely on their partner’s NI record to qualify for state pensions.

Educating employees

Scottish Widows research shows more people (56%) believe the State Pension will help ensure that they have a reasonable standard of living in retirement than cash savings (43%), or workplace pensions (38%). The reality is likely to be a combination – the state pension will play an important part, but this needs to be supplemented by other sources.

Employees will benefit greatly from even a basic understanding of the state pension. This should include how they qualify, when they will get it and how much it will be. With this knowledge and an idea of how much income they’ll need for a comfortable retirement, they can build a better picture of how much they need to be saving now, for example through their workplace pension.

Employers can look to their pension provider, financial adviser or independent bodies for help with this. Some will go further than others, offering a range of material, including videos, calculators, case studies and sometimes face-to-face presentations in the workplace, to really help deliver these important messages.