Mind the Gap - State Pension Age

Many of our members will have a State Pension Age that has already been changed to 66 or 67.  A further rise to 68 is currently scheduled to start in 2044 - this date may be brought forward if the Government thinks it appropriate, in the light of changes in life expectancy or wider changes in society.  

Most of our Plan members have a Normal Retirement Age of 65.  There is therefore an increasing gap between the Plan Normal Retirement Age and the State Pension Age.  There is also a gap in expected retirement income (the maximum State Pension is just over £8,000 a year, subject to sufficient National Insurance Contributions).  These gaps have different implications for different members which are described in more detail below.

If you do not know the age at which you will get your State Pension, you can use the link below, enter your date of birth and the website will calculate the date you will start to receive State Pension.

www.gov.uk/state-pension-age

PensionBuilderplus members with no final pay

If you are a member of  PensionBuilderplus (PB+) the normal retirement age is 65.  You can select a different target retirement age which can be earlier or later.  However most of the membership has not yet made this change.  

Most of the PensionBuilderplus membership is invested in a lifestyle strategy.  ‘Lifestyle’ is an investment strategy that automatically changes the way your account is invested as you approach retirement. From 20 March 2017 all of the membership currently in the Plan’s lifestyle strategy will be transferred to the Cash Lifestyle strategy unless they specifically choose another investment option. 

The Cash Lifestyle strategy assumes that you will want to take your PensionBuilderplus investment account as a cash lump sum when you reach your selected retirement date.   If you are more than five years from your selected retirement date then you will be invested in the Diversified Fund for this growth phase. When you are five years from your selected retirement date, your account will begin to gradually switch into the Cash Fund. By the time you reach your selected retirement date, your account will be 100% invested in the Cash Fund.  Below is a graph that shows the movement to cash over the last five years.

 

Figure 1 Cash Lifestyle

For many members the State Pension will be an important part of their retirement income and they may choose to work longer to bridge the gap and tie in with a later State Pension Age.  By electing to change your target retirement age you can defer taking your benefits under PB+ until you reach State Pension Age.  

However if you do not change your Retirement Age under PB+, then your fund will be invested 100% in the Cash Fund at 65 and will remain invested in the Cash Fund until you take your benefits.  Cash investments typically give a return of under 0.5% per annum. 

If you change your Plan retirement date to tie in with your State Pension Age then your funds will remain in growth assets for longer which may give a better investment return.

In order to “Mind the Gap” between State Pension Age and Plan Normal Retirement Date please inform Legal and General of your change in target retirement age or make the change online using the “manage your account” option.  A link to the website is provided below

www.legalandgeneral.com/manageyouraccount

If you need help registering for Manage Your Account, please call the member helpline on 0345 0708686 or email them at employerdedicatedteam@landg.com, quoting the Plan name and your National Insurance number.

If you decide to stop work and take your retirement benefits at 65 or earlier than 65 then you need to bridge the gap in your expected retirement income left by the delayed State Pension by either saving more or tightening your belt ! You could use your PB+ fund to bridge the gap but then it will not be available later and that still involves some tightening of the belt!

PensionBuilderPlus Members with Final Pay 

The issues for members with PensionBuilderPlus and Final Pay are similar to those with just PB+ funds (see above) but are  complicated by the Final Pay late retirement rules and the interaction between final pay and PB+ benefits.  Often Final Pay members use their PB+ account towards providing the tax-free lump sum they are allowed to take at retirement. This means they do not have to use as much of their Final Pay benefits to maximise tax free cash sum.  To keep this capacity they need to take both Final Pay and PB+ at the same time.

Most Final Pay members have a Normal Retirement Age (NRA) of 65.  If you wish to delay taking your benefits until after 65, to continue to work and bridge the gap in income to State Pension Age, then you have the option of writing to the Trustee to ask for the Trustee consent to late retirement.  This request must be made before your NRA. The pension will then be increased by the Plan late retirement factors (currently 6% but subject to review) and the annual pension in payment increases.  If you do not make this written request in time and delay, then you will be paid the back payments of the pension to your NRA as a taxable lump sum when you eventually elect to take your Final Pay entitlement.  

If members delay the payment of their Final Pay, then most will also delay taking their PB+ fund (to retain the capacity to take that fund as the combined tax free cash entitlement).  Most Final Pay members will be invested in the Cash Lifestyle Fund after the 20 March 2017 and in order not to end up 100% in Cash for longer than is desired, you may wish to change the PB+ target retirement age to coincide with the date that you expect to take your Final Pay benefits. This involves a separate instruction to Legal & General using the contact details given above or the online “manage your account” option.

Former Blue Circle Members who selected the flexible pension option.

Some former Blue Circle Members who retired from active service have over the years chosen to give up some of their lifetime pension in favour of a larger temporary short term pension payable to the age of 65. This is known as the Flexible pension option.   At 65 the flexible pension stops and your pension drops down to a reduced lifetime pension. The original intention of this option was to bridge the gap in income between early retirement and State Pension Age. However as State Pension Age has changed, this group of members will also be faced with a gap in their expected income from the age of 65 until the delayed State Pension begins. The same options apply to this group of members and if this applies to you, you must prepare for this gap in income by either saving for the event, tightening belts or returning to work or a combination of all three.  These are tough messages but there is no option to extend the flexible pension payment.