The new pension rules explained

With the new pension rules taking effect on the 6th April, are you ready for them? We interviewed Tom McPhail, head of pensions research at Hargreaves Lansdown, about what these changes are and how they'll affect you...

Q1: So Tom, it’s the start of a new tax year and we’ve seen some important changes implemented that effect pensions. Can you just talk us through the main things that have changed and why they matter?

Tom McPhail: Okay, big changes to the state pension, so where in the past men had to do 44 years of NI contributions, 44 years of working to get the full basic state pension, and women had to do 39 years, which effectively meant that a lot of people didn’t qualify for the full basic state pension.

Now the governments cut that to 30 years for everybody and that means that going forward most adults in the UK will be able to look forward to the full basic state pension, so that’s good news.

Q2: That’ll make a huge difference, won’t it - particularly for people who take career breaks to bring up children and things like that?

TM: Absolutely, and what they’ve also done is reduce the number of hours you need to spend working if you’re a carer, so they’ve improved the credits there for people who are at home bringing up children or looking after disabled relatives, so again, the governments looking to improve the deal that everybody gets from the state pension, so that’s good news.

Q3: On the flipside though, we’re all going to be working longer aren’t we eventually?

TM: We are all going to be working a bit longer! So the women’s state pension age is now going to start increasing from 60 to 65, and it’s a gradual process affecting women born between 1950 and 1955, and it’ll take 10 years to roll though so by the time we get to 2020, women’s state pension age will have gone up to 65 – and that process is just starting now.

Q4: And this is an incremental change isn’t it, it’s not suddenly gone to 61 straight away so it’s quite, a lot of people will be unsure as when they can retire, but there’s a calculator I know, isn’t there, on the website which will help you?

TM: That’s right, the website is a very useful resource- a lot of information is there about the basic state pension, about state benefits in general and indeed yes, there’s a calculator on there where you can go on and find out what your own state retirement age will be.

Q5: So eventually by 2020 both men and women will be retiring at 65, erm the retirement age, but then it’s going to increase again isn’t it?

TM: Yes they’re not finished yet, and indeed it’s going to keep going up! So from 2024 the state pension age starts going up first to 66, and then 67, and by the time we get to 2046 – quite a long way in the future – the state retirement age will have gone up to 68.

Q6: And this is all because we’re living longer and therefore the current state pension is a system that’s becoming unaffordable to support?

TM: That’s right. As the population gets older, and the weight of the population shifts towards the older ages - so we’ve got fewer workers paying taxes and more retired people drawing on state benefits - so the governments having difficulty balancing the books. So what they’re trying to do now is to shift that, shift the costs by getting everybody to retire a little bit later, just to help paper over the cracks a bit.

Q7: And it’s not just with the state pension that we’ve seen changes from the beginning of this tax year, is it? We’ve also seen changes for those who have got personal or occupational pension schemes?

TM: That’s right, so for any private pensions, in-keeping with this change in state retirement age, the minimum age which you can draw your private pension has now gone up to 55, so that’s it. Where before it was 50, you now have to wait until you’re 55 before you can start drawing on a private pension.

Q8: And obviously we’ve got a general election imminent depending on which party gets into power. Are there any other changes that we could see implemented as a result of the election?

TM: So, couple of possible changes in the wings, we’ve had this programme of reform from the current Labour government. The Tories are making some noises as well; they’re talking about raising the state retirement age even quicker. They’re saying ‘look, we need to move faster on this, so they’re talking about raising the state retirement age for men as early as 2016, and then starting to raise the women’s state retirement up beyond 65 by 2020.

And indeed, Lord Turner – the architect of the original Labour pension reforms – he recently went on record saying if he was doing it again he’d have pushed for state retirement age of 70, so that’s rather the way the winds blowing at the moment in terms of when we get to retire.

The other thing the Tories have talked about doing is scrapping the rule that forces you to buy an annuity at age 75.

Q9: So there could be further changes ahead then for the future?

TM:  I think we can be sure there’ll be more changes ahead on pensions!

CF: Well we’ll come back to you for more information if there is to help explain it to people, because I know it’s a complicated subject, isn’t it, that a lot of people panic and worry about!

TM: Hopefully we can make it easier for them!

CF: Brilliant, thank you Tom.

TM: Thank you.

Did you enjoy that? Why not share this article

Take control of your energy bills

Our handy tips and tools will help make sure you never overpay again

Popular guides