Those that receive the full old Basic State Pension will also see their weekly payments increase by £3.65 from £122.30 to £125.95.
The 3% increase means that annually these pensioners get a total of £6,549.40 in 2018/19, up from £6,359.60 in 2017/18 – which means they will be £189.80 better off over the course of the year.
Of course, this is in pure cash terms: the eroding effects of inflation could mean you will be no richer – or even poorer – in real terms, depending on your spending habits.
Tricks to boost your State Pension
There’s no way to access your State Pension benefit before you hit your State Pension age but you can delay when you receive it.
This might sound like a weird thing to want to do but it could result in you getting higher weekly payments or even a lump sum boost of up to 10.4% for each year you put it off.
How deferring you’re State Pension works
Those nearing State Pension age have the option of delaying when they receive it. Your pension will be automatically deferred until you claim it.
You can also choose to defer your State Pension even if you’ve already started claiming it. This loophole is not often mentioned but it’s entirely possible to ‘un retire’ and boost your future income.
How much can you get?
The amount of extra State Pension you can get will depend on when you reach State Pension age and whether you are entitled to the old style basic State Pension or the new State Pension.
If you reached State Pension age before April 6, 2016
If you reached State Pension age before April 6, 2016 you’re eligible for the basic State Pension and you can get 1% extra for every five weeks that you delay claiming it. This amounts to 10.4% for every full year you put it off.
So for someone getting the basic State Pension of £119.30 a week or £6,203.60 a year, delaying for 12 months will get you an extra £645 a year.
You can choose to take this extra income through higher weekly payments. Alternatively, you can go for a one-off lump sum option.
To get a one-off lump sum you must defer for at least 12 months in a row. The amount you get is worked out as if you had put the deferred pension into a savings account where it earned 2% above the base rate (which is currently 0.50%).
So for someone earning the basic State Pension of £119.30 a week, over a year you'd earn £6,203.60. Deferring for a year will allow you to take a lump sum of £6,343.18.
If you reached State Pension age on or after April 6, 2016.
If you reach State Pension age on or after April 6, 2016 you can get 1% extra for every nine weeks you defer the new State Pension. This equates to a 5.8% boost if you delay for a full year.
So for someone getting the full new State Pension of £155.65 a week or £8,093.80 a year deferring for a year will earn an extra £468, which you take through higher weekly payments.
Those who reach the State Pension age on or after April 6, 2016 don’t have the option of a one-off lump sum payment.
Should you defer your State Pension?
Deferring your State pension means giving up access to your money for a number of weeks or even years.
So this only really makes sense if you have alternative sources of retirement income like a personal or workplace pension that can support you during those periods.
You should also consider the time it will take for deferring to pay off.
Those who retired on or after April 6, 2016 will have to live for around 17 years to reap the benefit from delaying their claim for one year at the rate of 5.8%.
For those who retired before April 6, 2016 they only have to live around 10 years to see the benefit of deferring for one year at the rate of 10.4%.
Are Class 3A voluntary contributions a better option?
You can choose to top up your State Pension by between £1 and £25 a week equivalent to an annual boost of £52 or £1,300 a year for the rest of your life.
However, you will need stump up a lump sum in order to purchase this boost. The amount you pay depends on how much extra income you want and how old you are when you make the contribution.
You should work out how much it would cost you for the amount of extra income you want to get by deferring or using the top up system to see which one works out as better value for you.
Of course if you don’t have a lump of savings to hand over you won’t be able to top up your State Pension using Class 3A voluntary contributions and deferring your State Pension will be the best way to boost your income.
People who have come to their retirement age or wish to take benefits from schemes such as personal pensions have various options. Many clients opt to take monies flexibly, however, is pension advice always on the list of requirements?
Former Pensions Minister Ros Altmann explained in a recent interview.
“It is really vital that people considering moving their pension into a drawdown fund check all the charges first, I would recommend everyone to call Pension Wise. The government has set up this free service to help clients understand pension choices and explain the risks of different options’’
The value of the pensions and the income they produce can go down as well as up and you may not get back as much as you put in.
However, figures show that some six in ten people using the reforms to treat their funds like cash machines are being rolled on to their existing provider’s deal rather than shopping around, according to the City watchdog.
Experts warned that this means many are not getting the best deal, and are being hit by fees far higher than necessary. This is because in most cases, insurers offer to move savers’ cash into a small range of investment funds - unless the customer makes a special request.
But few savers realise there is a huge difference between the charges on the cheapest and most expensive plans on offer. The difference in charges may not look big, but over time can eat away at your pot.
Recently a spokeswoman for the Department of Work and Pensions said:
“Pension freedoms give people choice over how they use their hard-earned savings, but it is important that they are aware of any charges and the tax implications, we introduced a cap on early exit charges to ensure people are not forced to pay higher than necessary penalties for accessing their own money.”
Pension Wise: offer client‘s who wish to have further advice on their pensions the option of a local Financial Adviser who can cast a professional eye on the plans. In real terms a fee may be charged but it could save money in the long run.
This type of account is called a stocks & shares ISA, where you can invest in funds (shares or bonds from various companies pooled into one investment), bonds (basically a loan to a company or a government), and if needed shares in individual companies.
Stocks & shares ISAs are typically managed by an online service (often called an online broker or platform), fund management group or fund supermarket.
The value of the investment can go down as well as up and you may not get back as much as you put in.
If you wish to open a stocks & shares ISA, you need to be aware that many of these companies charge a fee for you to open and hold a stocks & shares ISA. Some even charge you if you want to change any of your investments, withdraw your money or move it to another company.
Some stocks & shares ISA providers may allow you to hold some of your allowance as cash within the stocks & shares ISA. But you're free to open separate accounts if you prefer.
In the tax year 17/18 the current ISA allowance is £20,000 and will stay the same in 18/19 tax year. This makes a worthwhile tax efficient incentive that can be totally invested in stocks & shares or split into a cash ISA account.
The process of investment must be done with care.
An online process can offer guidance; however, a local Financial Adviser will be able to give professional depth to the initial and ongoing investment strategy.