The UK pension system is one of the most generous in the world, and it’s no surprise that many Brits are retiring with a good income. But how much do you really know about your pension?
In this post, we’ll be giving you some information to help give you an idea of what your future could look like.
#01. UK Anticipates a 2.42% Increase On State Pensions
The UK government expects to spend around 101.2 billion British pounds on the state pension, 2.42% higher than the previous fiscal year in 2020/21 in which 98.8 billion was spent. The government has boosted spending on state pensions by 62.5 billion pounds since 2000/01.
#02. Increase of 11.6 Million People Contributing to Private-Sector Plans
The number of people contributing to private-sector plans has increased to 11.6 million over the last few decades. It’s steadily climbed until 2012, when auto-enrolment was implemented, the opposite was true for private pensions.
As a result, by 2018, the number of members actively contributing to private-sector plans had risen to 11.6 million.
#03. Member Contributions Have Been Increased by 3.2%
Across all public service pension schemes member contributions have increased. Over the period 2012/13 to 2014/15, the Coalition Government increased member contributions by 3.2% across all public service pension schemes excluding the military forces.
This was in response to the Independent Public Service Pensions Commission’s recommendation that this was the most efficient way of creating short-term Exchequer savings.
#04. 87% Active Contributors to Public Service Pensions
Active participation in public service pensions has increased, at a considerably slower pace, reaching 6.6 million in 2019. Employees in the public sector made up 87% of all persons actively contributing to a DB scheme.
#05. The Average Value of Pensions Decrease by More Than a Third
The Pensions Policy Institute concluded that the adjustments to the four main plans (NHS, civil service, teachers, and local government) lowered the average value of the benefit offered to all members of these plans by more than a third, from 23% to 14% of a member’s pay.
#06. 44% Surge of Employee Contributions to Pay-as-You-Go Schemes
Employee contributions to the four major pay-as-you-go schemes were £8.2 billion in 2019-20, up 44% from 2009-10.
Employees contributed over £2,700 to their pensions on average in 2019-20, a 33% increase in real terms over 2009/10 and roughly 8.5% of average salaries.
#07. Life Expectancy Expected to Climb by 3 1 Years
The cost strain on plans is being exerted by rising life expectancy. According to the most recent ONS predictions (based on data from 2018), the average lifespan of persons reaching the age of 65 will increase by roughly 3 1 years over the next 40 years.
#07. Estimated Unfunded Public Sector Employees Increased by 24.57%
Using a nominal discount rate of 4%, the Office for National Statistics calculated unfunded defined benefit liabilities to public sector employees in 2018 to be £1.18 trillion.
If a 3% nominal rate was utilized instead of the 2.9% rate projected by HM Treasury, the estimate increased to £1.47 trillion.
#08. Spending on Public Service Pensions Forecasted to Reduce to Roughly 1.5%
Following the 2011 to 2015 reforms and reductions in the public sector workforce, spending on public service pensions in Ireland is forecast to fall as a proportion of GDP from a high of 2.1% in 2022-23 to roughly 1.5% in 2064-65.
The predictions were made before the COVID-19 outbreak and the ramifications of the EU exit.
#09. 105% Increase by the Major Unfunded Public Service Pension Schemes
Total contributions from the four largest unfunded public service pension schemes had climbed by 105% in real terms, an increase of £17.1 billion over the preceding 20 years, according to the NAO’s March 2021 report, but growth had slowed in recent years.
#10. 7% Increase on Average Annual Pensions
Compared to 10 years ago, the average yearly pension was around 7% greater in real terms, and 16% higher in real terms than it was twenty years ago.
#11. 55% Tax Bill for Accessing Pension Before You Turn 55
If you try to withdraw your pension before you reach the age of 55, you will be faced with a 55% tax bill from the firm or third party acting on your behalf. This is considered an unauthorised payment by HMRC.
#12. Enjoy 100% Tax Relief at 75 Years of Age
If you earn less than £40,000 you’ll get a tax relief on pension savings. You can continue to enjoy tax relief on pension funds of up to £40,000 per year (tax year 2021-22), or 100% of your earnings if you earn less than £40,000 until you reach the age of 75.
#13. Inflation-Busting Rise of 3.9% on State Pension
Anyone receiving a state pension has seen an inflation-busting rise of 3.9%. The ‘triple lock’ measure, which ensures a certain level of rising each tax year, has lifted the state pension by 3.9% from April.
#14. 16% Of Employees Reduced Pension Contribution Levels Due to COVID-19
As a result of the Covid-19 pandemic, one-sixth (16%) of employees reduced their pension contributions, while 7% ceased contributing completely.
#15. If You’re Over 55 & Access Your Pension Anything Exceeding 25% Will Be Taxed
Yes, even if you haven’t retired, you can legally access your pension fund if you’re 55 or older. Anything exceeding 25% will be taxed, but only at your regular rate/s.
#16. State Pension Increased by 2.5%
Those receiving the full new state pension will see their weekly payment increase by £4.40 per week, thanks to a 2.5% increase in the state pension.
As a result, by the end of the 2021/22 tax year, they will have received an extra £228.80, bringing their annual income from £9,109 to £9,337.80.
#17. For Defined Contribution Pension Schemes You’ll Have 75% To Put Towards Your Retirement Income
In the case of defined contribution pension plans, you’ll have the remaining 75% to put towards your retirement income. Your pension scheme administrator should pay HMRC 25% of your pension pot, leaving you with the remaining 75% to utilise toward your retirement income.
#18. Retirement Income Is Subject to a 25% Lifetime Allowance Fee
A lifetime allowance fee of 25% applies to any amount over your lifetime limit that you use as a regular retirement income, such as by purchasing an annuity.
#19. If You Retired Before April 2016, You Will Receive an Additional 10.4%
Only if you chose to delay your state pension for a year when you reached/will reach state retirement age. A year’s wait was worth the entire value of that year’s state pension plus 10.4% extra if you retired before April 2016 and chose to postpone.
You can also take a lump sum payment from any deferred state pension. This includes the deferred payment as well as interest at 2% above the Bank of England base rate. Following the lump amount, you will receive a normal pension.
#20. Each Nine-Week Period You Defer Increases Your Weekly State Pension by 1%
The above applies if you retired after April 2016. The additional amount you can receive is determined by when you reached/will reach state retirement age.
This equates to a 5.8% increase if you delay claiming your state pension for a year.
#21. 4% Postponed Retirement, While 4% Accepted Early Retirement
Employees’ retirement plans have also been impacted by the Covid-19 pandemic. 4% have postponed retirement on the value of their pension, while 4% have taken early retirement on their employer’s pension plan
#22. Public Service Pensions Will Increase by 0.5%
Public service pensions that have been paid for a year will be enhanced by 0.5% on April 12, 2021, in line with the Consumer Price Index increase from September to September (CPI).
Any pension that’s been paid for less than a year will have its amount increased proportionately based on the number of months it has been paid.
#23. Inflation For a Fixed Income, Risen by an Average of 3-4% a Year
A fixed income may appear appealing at first since it pays out more money, but most people live on their retirement income for at least 20 years, and inflation has led prices to grow by an average of 3-4% per year over the last ten years.
#24. Employers Must Contribute a Minimum of 3% Of Your Qualified Wages
Employers are required to pay at least 3% of your qualifying earnings on your behalf, but many do so more, so you may be able to pay less rather than cease altogether.
If you’re concerned about your ability to contribute to a workplace pension scheme, speak with your employer to see if you can reduce your contribution.
#25. Just 31% Of Self-Employed People Save for Retirement
In the UK, there are around 4.8 million self-employed workers, accounting for 15% of the total. However, only 31% of the self-employed are saving into a pension
#26. Public Sector Employees Pension Higher By 67% Than in Private Sector
Employees in public sector over the age of state pension is higher by 67% than in Private Sector. Employees in the public sector over the age of state pension were nearly twice as likely (50%) to have a workplace pension as those in the private sector (30%). Employees in Public Sector Over the Age of State Pension Is Higher By 67% Than in Private Sector
#27. Pension Participation 3.94% Higher By Males Than Females
When it comes to gender, the disparity in pension participation was narrower. Male employees had a marginally higher membership rate of 79% than female employees which has 76%.
#28. Only 16% Of Private-Sector Workers Under the Age of 22 Had a Workplace Pension
Only 16% of private-sector employees under the age of 22 were enrolled in a workplace pension (they were not eligible for auto-enrolment but may opt-in). Those aged 22 to 29 years old were eligible for auto-enrolment in 78% of cases.
#29. Females Have 3.52% More than Males for Workplace Pensions
The gender gap in workplace pension participation was relatively small for full-time employees, with females having a higher rate (88%) than males (85%).
The U.K.’s pension system is one of the most complex in the world. These statistics might surprise you but they’re important to take into account. They demonstrate how changes in state pension might affect you as an individual.