From a £250-a-year pay rise for pensioners to a boost to private retirement savings, the new tax year brings plenty of changes to pensions.
If you’re wondering whether you’ll be better or worse off from 6 April, Which? is here to help. We’ve outlined the seven big changes you can expect to impact on your pension – both from this Friday and throughout the new tax year.
State pension rises by 3%
First, let’s get the big one out the way – how much extra state pension you’ll get this year.
The state pension is increased annually by something called the ‘triple lock’ – a rate determined by either inflation (the Consumer Price Index), earnings or 2.5%, whichever is the highest.
This year, it was inflation, which in September 2017 (the month the measure is taken) was 3%. So, what does that mean for pensioners?
If you reached state pension age before April 2016
You qualify for the basic state pension and any additional state pension you may have built up.
The basic state pension is rising from £122.30 to £125.95 per week, equivalent to an extra £189.80 a year.
The additional state pension isn’t increased by the triple lock, but simply each September’s inflation measure – so will also rise by 3%.
How much additional state pension you get will depend on your earnings during your career, but the maximum you can get in the 2018-19 tax year is £172.28 per week.
If you reached state pension age on or after 6 April 2016
You qualify for the new state pension, which brings together the basic and additional state pension into a single payment.
The full amount is rising to £164.35 a week, up from £159.55. That’s an extra £250 a year.
You may get more or less than this depending on the amount of additional state pension you built up in the old system, and whether you were every ‘contracted out’ of the scheme to build a bigger private pension during your career.
You could get an idea of how much the state pension will rise in the 2019-20 tax year as early as August this year. That’s because the government uses the July earnings figures (published a month or so later) as the measure for the triple lock.
Watch our exclusive interview with Guy Opperman, the pensions minister, where he discusses the future of the state pension.
State pension age equalisation
State pension ages are due to become exactly the same (65 years old) for men and women by the beginning of November this year.
Women born between 6 November 1953 and 5 December 1953 will be the first group to get the state pension at the same age as men.
|Date of birth||
Date state pension age is reached
|6 September 1953-5 October 1953||6 March 2018|
|6 October 1953-5 November 1953||6 July 2018|
|6 November 1953-5 December 1953||6 November 2018|
Another increase is not far off. The state pension age is due to rise to 66 by October 2020, and again to 67 by 2028. The next increase, to age 68, takes place between 2037 and 2039.
Use our state pension age calculator to work out when you qualify.
Auto-enrolment boost to pension savers
Pension auto-enrolment is the government policy that gets people saving for retirement.
All qualifying workers must now be automatically entered into a pension scheme, and both employees and employers must make a minimum contribution, which is a percentage of their salary.
This has been 1% for both employee and employer since October 2012. But on 6 April, the employer contribution jumps to 2% and the employee contribution trebles to 3%, meaning you have a total of 5% of your eligible income being paid into a pension.
Total contribution rates are due to rise to 8% on 6 April 2019.
|Period||Employer minimum contribution||Staff contribution||Total minimum contribution|
|Until 5 April 2018||1%||1%||2%|
|6 April 2018-5 April 2019||2%||3%||5%|
|6 April 2019 onwards||3%||5%||8%|
Pensions lifetime allowance rises by £30,000
There is a limit on how much you can hold in your pension. This is called the ‘pensions lifetime allowance’.
If you exceed this amount, you could face a tax charge of between 25% and 55%.
The lifetime allowance has been frozen for the past two tax years at £1m, after years of cuts. However, on 6 April a new increase will apply – the lifetime allowance will now rise annually by inflation, measured each September.
So, the 2018-19 lifetime allowance will increase by 3%, to £1.03m.
More pension tax relief… for Scottish savers
As a thank you for taking the initiative to save for your retirement, the government rewards you with a top-up to your pension contributions.
This comes in the form of pension tax relief. It’s paid on your pension contributions at the highest rate of income tax you pay. So:
- Basic-rate taxpayers get 20% pension tax relief
- Higher-rate taxpayers can claim 40% pension tax relief
- Additional-rate taxpayers can claim 45% pension tax relief.
That’s not changing for most people in the UK – except for those in Scotland. Scots are paying new rates of income tax and, consequently, will enjoy higher amounts of pension tax relief. It works like this:
|Income||Band name||Income tax rate||Pension tax relief rate|
|Between £11,850-£13,850||Starter rate||19%||20%|
|Between £13,850-£24,000||Basic rate||20%||20%|
|Between £24,000-£43,430||Intermediate rate||21%||21%|
|Between £43,430-£150,000||Higher rate||41%||41%|
|Above £150,000||Top rate||46%||46%|
Note that, Personal Allowance is reduced by £1 for every £2 earned over £100,000.
People in England, Wales and Northern Ireland can find out how much tax relief using our pension tax relief calculator. We’ll be updating it soon for Scottish income taxpayers.
Pension credit boost for low earners
Pension credit is awarded to you based on your earnings – known as a means-tested benefit – and tops up your basic state pension.
It’s made up of two parts, called guarantee credit and savings credit. Around four million people are entitled to pension credit but, according to the government, a third of those fail to claim it.
Guarantee credit tops up your weekly income to £163 for single people and £248.80 for couples in 2018-19. To qualify for it, you must:
- Live in the UK
- Have reached pension-credit qualifying age (the same as state pension age) if you’re a woman
- Have reached the state pension age of a woman born on the same day as you if you’re a man
- Have weekly income below £163 if you’re single and £248.80 if you’re in a couple.
Savings credit gives people a little extra money to reward them for saving towards their retirement.
Savings credit is only available for people who reached state retirement age before April 2016. However, if you’re in a couple and your partner reached state pension age before 6 April 2016, you could still qualify.
There’s a few criteria that you need to meet before you qualify for savings credit:
- You have a minimum income of £140.67 a week if you’re single, and £223.82 a week if you’re in a couple in 2018/19
- You or your partner must be 65 or over
- You must be living in the UK
- You must have made some provisions for your retirement, such as savings or a second pension.
The maximum savings credit you can get per week is £13.40 for a single person and £14.99 for couples.
The rules around pension credit are complex. Find out if you’re eligible in our guide.
Pension cold-calling ban coming soon
Pensions-related cold calls, emails and text messages are to be banned as part of tough new measures aimed at protecting people’s savings from scammers, who have stolen more than £40m in the past three years.
All unsolicited calls, emails and texts relating to pensions will be banned, and the government will also tighten the rules so that only active companies with up-to-date accounts will be able to register pension schemes, in a bid to prevent fraudulent schemes being set up.
And transfers of pension pots held with occupational schemes (those set up by employers) will be blocked unless the scheme it is being transferred to is regulated by the Financial Conduct Authority, or has an active employment link with the individual, or is an authorised ‘master trust’ (a pension scheme used by several companies).
The ban is due to be implemented some time this year, as the government implements the Financial Guidance and Claims Bill.