With each new tax year comes a host of changes outlined in the Chancellor’s annual Budget. From increases to the State Pension and lifetime allowance to impending changes to the State Pension age, here are four key things that will affect your pension in 2018/19.
1. State Pensions get 3% boost
Regardless of whether you retired before 6 April 2016 and receive the Basic State Pension or have retired since and receive the new State Pension, your income will increase by 3%. If you qualify for the full new State Pension you’ll receive £164.35 each week and £8,546.20 annually.
2. Pension Lifetime Allowance limit increase
While the annual pension contribution allowance remains unchanged at £40,000, the lifetime pension allowance has increased in line with the Consumer Price Index. In 2018/19 you can save a maximum of £1,030,000 into your pension, over your lifetime. Anything you save and then withdraw over this amount will be subject to an extra tax charge.
3. Auto Enrolment contributions are on the rise
If you’re enrolled in your workplace pension scheme, your contributions will automatically increase from 1% to a minimum of 3%. So if you were only making the minimum contributions last year, you’ll effectively be tripling the amount you have to save into your pension this year.
In addition to your mandatory contributions going up, your employer’s will also rise – doubling from 1% to 2%. This is great news for people who struggle to contribute more than the minimum amount to their pension, and the best thing of all? You won’t need to do anything for these changes to take effect.
Next April the level of minimum contributions will increase again to 5% for you and 3% for your employer. When built up over time, this will go a long way to protecting you from a retirement shortfall.
4. The State Pension age stays the same, for now
While this isn’t strictly a change, it’s good to be aware of what’s in store for the next few years – especially if you’re approaching retirement. By the end of 2018 the State Pension age will rise to 65 for both men and women, increasing to 66 by 2020. It’s likely to rise to 67 by 2028 with further reviews expected every five years.
Regardless of your age, you’ll need 35 years of National Insurance contributions to qualify for the full State Pension when the time comes so it’s worth making sure you avoid these three State Pension mistakes.
Managing your pension
If you’d like to check how much State Pension you qualify for, when you can claim it and what you can do to increase it, visit the gov.uk website for further information. Our pension calculator can help you figure out how much you’ll need to save to live comfortably in retirement and PensionBee’s simple plans will enable you to combine all of your old pensions into one easy-to-manage pot.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.