Respected financial authority Helen Morrissey has drawn attention to the pressing need for retirement income planning, even in light of the recent 10.1% increase in State Pension payments. While this boost is welcome, it still falls short of providing adequate financial security for many retirees. For the 2023/24 fiscal year, the full new State Pension amounts to just over £10,600, while the full Basic State Pension stands at £8,100—figures that remain below the income levels required for a comfortable retirement.
Morrissey, a pension analysis expert at Hargreaves Lansdown, has expressed particular concern about the significant number of elderly individuals, especially women, who are not receiving the full State Pension. This shortfall is often due to gaps in National Insurance contributions, which can occur when individuals take time off work to care for family members. These gaps can have a lasting impact on their retirement income, leaving many vulnerable in their later years.
The Department for Work and Pensions (DWP) estimates that around 850,000 elderly individuals may be missing out on Pension Credit, a means-tested benefit that provides over £3,500 in financial support annually. Pension Credit not only supplements income but also acts as a gateway to additional assistance, such as help with housing costs, Council Tax, and heating bills. Despite its importance, many eligible pensioners are unaware of this benefit or how to claim it.
Currently, about 1.4 million pensioners across Great Britain receive Pension Credit. To help others determine their eligibility, the DWP offers a Pension Credit calculator on its website. Additionally, the Pension Credit helpline is available to assist with claims, making it easier for elderly individuals or their families to access this vital support.
Morrissey also highlights a broader trend in retirement spending: “Spending tends to fall sharply as we get older, as you may go out less and you may not drive as much as you once did.” This shift underscores the importance of having additional retirement income sources, such as final salary pension provisions, to ensure financial stability in later life.
Analysis by Hargreaves Lansdown reveals that only around 42% of households are on track to achieve a moderate retirement income of approximately £23,000 per year for a single person—a benchmark set by the Pensions and Lifetime Savings Association (PLSA). For those without substantial retirement savings, the outlook can be bleak. Morrissey warns: “If you are single, or still paying significant housing costs, you’ll be struggling to meet anything more than your most basic needs.”
Cost of Living Payments Worth £300 and £299
Pensioners who qualify for Pension Credit may also be eligible for cost of living payments scheduled before Spring 2024. Two such payments are available, with the first £300 payment open to those on income-related benefits, including Pension Credit, until November 19, 2023. Even a Pension Credit award of just a few pence can qualify a pensioner for these means-tested payments, which include the £300 and £299 instalments.
Additionally, those who qualify for the Winter Fuel Payment and were born before September 25, 1957, may be eligible for the £300 pensioner cost of living payment. It’s worth noting that Pension Credit is a retrospective benefit, meaning claims can be made up to three months late. For example, a claim submitted before December 10 would cover the qualifying period from August 18 to September 17.
Pension Credit Explained
Pension Credit is designed to top up the income of individuals who are beyond State Pension age and on a low income. It ensures that single pensioners have a weekly income of at least £201.05, while couples receive at least £306.85. Those with disabilities or caring responsibilities may qualify for additional support.
Beyond the financial top-up, Pension Credit opens the door to a range of other benefits. These include access to Housing Benefit or Support for Mortgage Interest, Council Tax discounts, a free TV licence for those aged 75 or over, help with NHS dental treatment and glasses, assistance with hospital appointment transport costs, and heating cost support through the Warm Home Discount Scheme. Pension Credit recipients may also benefit from a discount on the Royal Mail redirection service if they are moving house.
In May 2019, a legislative change reclassified ‘mixed age couples’—where one partner qualifies for State Pension and the other does not—as ‘working age’ when assessing means-tested benefit entitlement. This change has implications for how such couples access financial support.
The Pension Credit calculator on the GOV.UK website is a useful tool for determining eligibility. To use it, you’ll need details about your earnings, benefits, pensions, savings, and investments, as well as information about your partner if applicable. However, the calculator cannot be used if you or your partner are deferring your State Pension, own more than one property, are self-employed, or have housing costs not covered by mortgage repayments or Housing Benefit.
Applications for Pension Credit can be started up to four months before reaching State Pension age. While claims can be made at any time after reaching State Pension age, they can only be backdated for three months. This means you could receive up to three months of Pension Credit in your first payment.
Planning for retirement income is a critical aspect of financial security in later life. For more advice on retirement income planning and updates on financial news in Glasgow, visit our dedicated resources.
