Latest news with #statepension
The Sun
15 hours ago
- Business
- The Sun
How to boost your state pension for free with 1% trick and get £700 extra a year
SOON-TO-BE retirees can boost their state pension for free and get up to nearly £700 extra a year with a simple trick. Many apply for the state pension as soon as they reach the eligible age of 66 (which will rise to 67 by the end of 2028), but if you delay your claim, you could get higher payments. 1 You can get an extra 1% for every nine weeks that you delay your claim. That means that for every year you delay, you boost your payout by just under 5.8 per cent. 'Deferring your state pension can be a sensible option if you don't need the income immediately and want to boost the payments you receive later in retirement,' said Jon Greer from the investment platform Quilter. How much will you get? The full new state pension is worth £230.25 a week. That means that over the full 2025-26 tax year, you could boost your payments by about £13.35 a week, which is about £694.20 a year, according to Quilter. These figures are based on the current state pension amounts, but as this increases each year thanks to the triple-lock, the actual amounts you add are likely to be higher. The boosted amount increases each year based on the Consumer Price Index. You may want to consider deferring your state pension if you don't urgently need it, such as if you are still in work. Deferring your pension also has tax benefits, said former pensions minister Steve Webb, who now works at the pensions consultancy LCP. 'Drawing a pension alongside a wage can mean a lot more of your pension is taxed - even potentially at a higher rate - than if you wait until your earnings have stopped.' However, there are risks to consider, said Tom Selby from the investment platform AJ Bell. He said: 'If you die earlier, you might not recoup the state pension income you gave up in return for the increase, so if you have health issues then deferral might not be the best option.' Deferring the state pension could be a big mistake for those eligible to claim Pension Credit - which is a handy benefit worth up to £3,900, which also unlocks the Winter Fuel Payment, worth up to £300. Martin Lewis reveals nearly 800,000 Brits could claim hundreds in free cash - here's how to apply That's because your boosted state pension payments could tip you over the threshold for Pension Credit, which is £227.10 if you are single, or a joint income of £346.60 if you have a partner. If you get the full new state pension, you are already over this threshold. It would take about 17 years to make back a year of the state pension payments lost by deferring, although this does not factor in future state pension rises. Who is eligible? Most people can defer their state pension, but there are some exceptions. Time spent in prison or when you or your partner get certain benefits does not count towards the nine-week deferrals. You cannot build up extra State Pension during any period you get: Income Support Pension Credit Employment and Support Allowance (income-related) Jobseeker's Allowance (income-based) Universal Credit Carer's Allowance Carer Support Payment Incapacity Benefit Severe Disablement Allowance Widow's Pension Widowed Parent's Allowance Unemployability Supplement You cannot build up extra State Pension during any period your partner gets: Income Support Pension Credit Universal Credit Employment and Support Allowance (income-related) Jobseeker's Allowance (income-related) The rules are different if you reached your state pension age before April 6, 2016. Instead of a 1% increase for every nine weeks you delay, you get 1% for every five weeks that you don't claim, and you will be given a choice over how to receive your boosted state pension amounts. You can either choose to get higher weekly payments, or you can opt for a one-off lump sum (although this is only an option if you deferred for at least 12 months in a row). The lump sum payment also includes interest of 2 per cent above the Bank of England base rate, which would be 6.25 per cent. If you choose to get a lump sum fixed payment, consider putting it in a high interest savings account. If you're planning on not touching your state pension until at least another five years, consider investing it to make your money work as hard as you can. How to delay You don't need to do anything to delay your state pension - you simply just don't claim it. When you want the money, you can make a claim on the website. The Department for Work and Pensions will then add the boosted amount onto your payments. The DWP should send you a letter no later than two months before you reach state pension age explaining how to claim it. How does the state pension work? AT the moment the current state pension is paid to both men and women from age 66 - but it's due to rise to 67 by 2028 and 68 by 2046. The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age. But not everyone gets the same amount, and you are awarded depending on your National Insurance record. For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings. The new state pension is based on people's National Insurance records. Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension. You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit. If you have gaps, you can top up your record by paying in voluntary National Insurance contributions. To get the old, full basic state pension, you will need 30 years of contributions or credits. You will need at least 10 years on your NI record to get any state pension.
Telegraph
16 hours ago
- Business
- Telegraph
‘Can my wife get a state pension if she's never paid National Insurance?'
Write to Pensions Doctor with your pension problem: pensionsdoctor@ Columns are published weekly. Dear Charlene, I am an NHS doctor and soon to retire, although I have been drawing my state pension for a few years already. My wife is 65 and a British passport holder, but she has never contributed to National Insurance (NI). She did work part-time in a clerical role, earning around £500 per month at the time. She also has a small pension pot. I have two questions about my wife: When she reaches age 67, is she eligible for any state pension at all? After my death, will she get any part of my state pension? I believe she will get half of my NHS pension payments. Many thanks, –B Dear B, I'll begin by going through the state pension rules before looking at the payments that could be made from your pensions on your death. Under the 'new' state pension system, your wife will need at least 10 qualifying years to get any state pension in her own right. Although your wife was not earning enough to pay NI when she was working part-time, she may still have built up some qualifying years for the state pension. That's because her £500 monthly wage could have put her above the lower earnings limit (LEL) at the time. The LEL was designed for people in your wife's situation. It is currently set at £125 per week, above which an employee who is not earning enough to pay NI gets a credit in the NI system, allowing qualification for certain benefits, including the state pension. NI contributions are treated as having been paid for those years to protect someone's record. Your wife, therefore, needs to check her NI record and get a state pension forecast – both of which can be done online on the government website – as soon as possible to see if she has benefited from credits at all. From there, it will be clearer as to whether there is scope to plug any gaps with voluntary contributions to get her to the 10 required years, or beyond. Your own state pension You are also under the 'new' state pension system, which began in April 2016, and you have already claimed your pension. Under the new system, there is less scope for a surviving spouse to inherit anything. But surviving spouses or civil partners might be able to claim up to 50pc of their late partner's 'protected payment'. This is the amount they receive if they paid into the additional state pension before 2016 and would have been better off under the old system. Your state pension statement will show if you are receiving any protected payment at the moment. But, if I'm correct in assuming that you've been an NHS doctor your whole career, I think it is unlikely that you will be receiving it. This is because the NHS pension was 'contracted out' of the additional state pension. Your NHS pension You've already mentioned a 50pc spouse's pension that would be paid to your wife after your death. It's also worth checking with the NHS pension scheme to double-check if your wife will be entitled to anything else. Clearly, I want to wish you a long and happy retirement but, as an example, if you were to die within five years of retiring, your wife might also be eligible to receive a lump sum from the scheme too. This could be up to five times your annual pension, less any payments made to you up until your death. The lump sum on offer will depend on which section of the NHS scheme you are part of, and how much tax-free lump sum you take at the start, among other factors, so it is best to speak to the scheme itself to get the full picture. It's worth mentioning that pension credit can provide extra money to help with living costs for people over state pension age with a low income. But it's likely that any death benefit payable from your NHS pension will put your wife over the income limit. With best wishes, –Charlene Charlene Young is a pensions and savings expert at online investment platform AJ Bell. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.
The Sun
2 days ago
- Business
- The Sun
How to legally avoid paying tax on your pension as millions hit with shock bills
MILLIONS of retirees have been hit with shock tax bills after their state pension payments increased. Around 904,000 people on the state pension are now paying income tax at 40%, according to data obtained from HM Revenue and Customs in a freedom of information request. Meanwhile, 124,000 retirees are now paying the tax at an eye-watering 45%. The new state pension rose to £11,973 a year in April, putting it within touching distance of the £12,570 income tax threshold. But some pensioners receive more than this amount each year because they delayed the date at which they started to claim the payments. Pensioners who get income from a private pension could also find themselves pushed over this threshold. Income tax thresholds are frozen until April 2028, which means that more people could find themselves dragged into higher tax bands through a concept called fiscal drag. The higher rate tax band is frozen at £50,270, which means any earnings over this amount are taxed at 40%. Meanwhile, the additional rate tax band is fixed at £125,140, beyond which any earnings are taxed at 45%. But there are things you can do to stop a surprise tax bill landing on your doorstep. Here we explain how you can avoid the tax trap. Time your tax free withdrawals You can withdraw up to 25% of your pension pot tax free when you first retire. How to track down lost pensions worth £1,000s However, you need to pay tax on any money you withdraw beyond this. Any money you withdraw is added to the other income you receive, which could push you into a higher tax bracket. One way to avoid this is to spread out your withdrawals over several years, suggests Andrew Oxlade, investment director at Fidelity International. He said: 'If you do take a portion of the 25% tax-free sum every year, that income, along with income from Isas and your state pension, could be enough to keep taxable withdrawals from your pension below the higher-rate threshold.' How does the state pension work? AT the moment the current state pension is paid to both men and women from age 66 - but it's due to rise to 67 by 2028 and 68 by 2046. The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age. But not everyone gets the same amount, and you are awarded depending on your National Insurance record. For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings. The new state pension is based on people's National Insurance records. Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension. You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit. If you have gaps, you can top up your record by paying in voluntary National Insurance contributions. To get the old, full basic state pension, you will need 30 years of contributions or credits. You will need at least 10 years on your NI record to get any state pension. He adds that this could be a particularly good idea for people who do not have a particular use in mind for their tax-free sum, such as paying off their mortgage. Andrew recommends that you add up your income from other sources and take the exact amount that will keep your total income below the tax threshold. Avoid emergency tax Once you have withdrawn the tax-free portion of your pension pot you will need to pay tax on any money you take out. When this happens, many savers are put on an emergency tax code. This happens because HMRC does not have an up to date tax code for you, so as a default it charges a higher estimated rate. You may then receive an unexpected tax bill and it can take months to get the money back. One way to avoid this is to take just £1 from your pension pot, which will trigger a tax code from HMRC. What are the different types of pensions? WE round-up the main types of pension and how they differ: Personal pension or self-invested personal pension (SIPP) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest. Workplace pension - The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. Final salary pension - This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year upon retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore. New state pension - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you'll need 35 years of National Insurance contributions to get this. You also need at least ten years' worth to qualify for anything at all. Basic state pension - If you reach the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £156.20 per week and you'll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes. Once you have the code you can withdraw money from your pot and will be charged at the correct rate. Check your pension provider's rules to make sure it will allow you to withdraw such a small sum of money. Use your Isa Isas are a great way to top up your income without paying any tax. This is because all money you withdraw from an Isa is tax-free, so it does not count towards your taxable income. To make use of them just make sure you withdraw less than £50,271 from your private pension. You can then top up your income with money from an Isa. Or if you do not want to pay any tax then simply claim your state pension and withdraw any extra money you need from your Isa. Pay into your pot If you are still working when you start to receive the state pension then you will be able to benefit from a tax loophole. This is because you can still pay into your private pension even if you are above the state pension age, which is currently 66. Robert Cochran, retirement expert at Scottish Widows, explains: 'This can be especially beneficial if your pension income pushes you into a higher tax bracket. 'Contributions may reduce your taxable income and bring you back into a lower band.' The maximum amount that you can pay into your pension once you are above the state pension age is £10,000. This can have a significant impact on the tax you need to pay. For example, if you earned £10,000 from your job and received the full new state pension then your total income would be £21,973 a year. In total, you would pay £1,878.80 in income tax. But if you paid the money from your job into your private pension then you would not pay any tax. Make use of marriage allowance You may also be able to save on your tax bill if you are married or in a civil partnership. Depending on how much you earn, you may be able to transfer some of your personal allowance to your partner. This tax perk is called marriage tax allowance. You can transfer up to £1,260 of your personal allowance to your husband, wife or civil partner. Doing so reduces your tax bill by up to £252 a year. To benefit you need to be earning less than your personal allowance, which is £12,570. Meanwhile, your partner must earn less than £50,270. website. .
Telegraph
3 days ago
- Business
- Telegraph
Is it worth deferring my state pension?
A little-known secret about your state pension is that delaying when you start taking your payments could mean getting higher amount when you do decide to claim. If you live a long time, it could net you thousands of pounds. But it doesn't work for everyone, and there are some catches to navigate – from gambling on your own life expectancy to potential tax implications. Here, Telegraph Money sets out who could benefit from state pension deferrals, how it affects you and the best ways to avoid some significant drawbacks. What is deferring your state pension? Am I eligible and how does it work? How much would I get? Is deferring still worth it? State pension deferral FAQs What is deferring your state pension? Deferring your state pension is when you decide to wait beyond your state pension age to claim it. People currently reach the state pension age on their 66th birthday. For every nine weeks you wait, you'll get an extra 1pc on top of your original payment when you do come to claim it. Benefits of deferring your state pension There are some major benefits to deferring: Higher payments. The 1pc for every nine weeks stacks up to 5.8pc extra a year, every year, and that's on top of your existing payments. That means you will have more money coming in, and it's guaranteed for life. Your payments will increase each year. Under the triple lock, this extra amount you're receiving will also increase each year by at least 2.5pc. Due to higher inflation, it actually increased by 8.5pc last year and will rise 4.1pc from April 2025. Potential tax savings. You might pay less in tax if your income drops before you claim your state pension. For instance, if you're earning over £50,270 a year, you'd pay 40pc tax on your state pension. If you waited until your income was lower, such as by stopping work, you'd pay less tax. Drawbacks of deferring your state pension There are some major potential pitfalls to deferring and you'll need to consider these: Getting less money overall. The state pension changes each year, but it's generally accepted that it takes between 19 and 20 years from state pension age to break even if you defer, regardless of how many years you defer for. If you die before then, you could end up receiving less money than if you'd started claiming payments as soon as you reached state pension age. A lower income before you claim. You will have less money during the time you defer and if you claim before the end of a nine week period, you won't qualify for that specific 1pc increase. Figures from the Office for National Statistics (ONS) imply that deferring is something of a gamble. Its online calculator suggests that the average 65-year-old men could can expect to live further 20 years, to 85, and 65-year-old women a further 22 years, to 87. This is projected to rise to 21.9 years for men in this age bracket, and to 24.1 years for women by 2045. What is more predictable is how this could negatively affect your tax bill, which we also discuss below. However, it's important to remember that you're not committed to deferring your state pension. If you change your mind, you can just claim it. Am I eligible and how does it work? Anyone can defer their state pension: You don't need to do anything, as your state pension won't start until you actually claim it. This can be done online, over the phone or by post, but you should get a letter explaining all this shortly before you reach state pension age. If you haven't reached it yet, our state pension age calculator can help you find out when this will be. There's no maximum amount of time you can defer for, and you'll keep building up money for every nine weeks you wait. However, it is crucial to also bear in mind that if you or your partner are claiming certain benefits, such as pension credit or Universal Credit, you will not build up extra money by deferring during that time. If you're planning on continuing to claim those, it's unlikely that deferral will be the right option for you. How much would I get? Currently, you would get an extra £2.30 a week, or £120 a year, for every nine weeks you defer. This is because the full state pension for people who reach retirement age after April 2016 is £230.25 per week, or around £11,973 per year for 2025-26. If you deferred for a full year, the 5.8pc increase would add an extra £694 to what you'd receive annually. Alternatively, you can look at it as giving you around £13.35 a week extra. How long can I defer my pension for? You can defer your state pension payments for as long as you like. As state pension payments won't begin until you make a claim, the length of time you defer for is entirely in your hands. The key is working out when the best time to claim is – this will depend on your other income, whether you're keen to minimise tax, and whether you're concerned about potentially missing out on any of the benefit you're entitled to. Navigating higher tax brackets Income from the state pension forms part of your overall taxable earnings, so there are some considerations and calculations to make. It might be worth deferring to save yourself tax. For example, if you reach state pension age, carry on working and your income is over £50,270, you will lose 40pc of your state pension in tax if you claim it immediately. However, if you defer until you stop working, you'll pay less tax if your total income then drops into the lower tax bracket of 20pc. If your only income was your state pension, you could even pay no tax at all. Natalie Kempster, of financial planner Argentis Wealth Management, said: 'Someone earning £150,000 per year would effectively pay 45pc tax on their state pension, meaning that they would net just £6,326. Defer your pension until the following year, when you are retired and a basic-rate taxpayer, then the numbers start to look a whole lot more favourable.' However, Dean Butler, Standard Life's retail managing director, said you should also consider whether taking a higher income later (through deferring) might actually push you into the next tax band, as opposed to taking a lower income from an earlier date. This brings its own issues. It might not be worth deferring if it means you're then taxed at 40pc or 45pc on what you have gained, especially if it's that gain alone that pushes you into the next tax bracket. Is deferring still worth it? Some people think this depends on which state pension they receive. Under the 'old' pre-2016 state pension system, many people deferred because there was a significant uplift to be had, and there was the option to take the deferred payments as a lump sum. Claire Trott, of wealth manager St James's Place, said that compared to the old state pension, the extra amount you get from deferring the new state pension had nearly halved – the uplift for deferring dropped from 10.4pc to 5.8pc. Andrew Tully, of Nucleus Financial, said an alternative to deferring could be to take your payments straight away and use them to invest in an Isa. He explained: 'That means you have access to that at any point, and it may grow over time.' Overall, whether it's worth deferring your state pension is dependent on a number of factors, including your income, where you retire, your cost of living, tax implications and how long you'll actually live. State pension deferral FAQs Can I defer if I've already started getting my state pension? Yes, but only once. You can keep the deferral going for as long you like, but once you restart your pension, you cannot pause it again. You'll need to start the deferral yourself by contacting the Pension Service. Can I defer if I'm still working? Yes. Whether you're working or not has no bearing on deferring, or claiming, your state pension. As long as you've reached your state pension age, the decision is up to you. However, as mentioned before, there may be a tax advantage to deferring if you still have a regular income from work. What if I'm on the old state pension? If you're eligible for the old state pension, you are probably already receiving it. As above, you can still decide to defer it if you haven't already done so in the past. You will get 1pc for every five weeks you defer, which works out as 10.4pc for every 52 weeks. You can take the amount you build up as a lump sum or opt for extra regular payments. If you're on the new state pension, you don't have the lump sum option. What happens if I retire abroad? You can still defer. Each year, the state pension increases by the highest of inflation, average wage increases or 2.5pc. This is known as the triple lock and it applies to the extra amount you get by deferring too. For this to apply however, you'll need to live in the UK, the European Economic Area (including Switzerland) or a country with which the UK has a social security agreement (except Canada or New Zealand). If you live in a country that doesn't fit the criteria, you'll still receive the extra payments you have built up. However, they will be frozen at the level they were at when you either reached state pension age or moved abroad, whichever is later. What happens when I die? This depends on which state pension you receive. If you reached state pension age before April 6 2016, you're on the old state pension. This means your husband, wife or civil partner can inherit the extra payments you've built up, subject to certain conditions. If you get the new state pension, i.e. you reached state pension age on or after this date, they can't. Our guide to what happens to your pension when you die can explain more.
Daily Mail
5 days ago
- Business
- Daily Mail
Warning over pension clawback - could it hit YOU at state pension age?
'Pension clawback' means your final salary pension might be cut when you reach state pension age. The reason for this originates in rather arcane arrangements dating back to the dawn of the welfare state in the 1940s - and many pension schemes have since changed their rules or phased out the practice. But if you are due a final salary pension via a current or old employer it is worth paying close attention to all information on the paperwork you are sent - and any choices you are being asked to make – especially in the run-up to retirement. If you discover your scheme operates 'clawback' it's most important to fully grasp the rules, particularly if you retire before 66 and so will see a drop in your work pension after you start receiving your state pension. Be prepared in advance, and ask questions of your scheme about the impact on you personally, to avoid any nasty shocks to your budget later in retirement. Clawback has become controversial over the years, as we will explain below, because people are understandably exercised by a sudden loss of income when they don't expect it or haven't had an explanation. Here's what you need to know about pension clawback... What is 'pension clawback' and how does it work? Pension schemes use different names for this and it's worth knowing the financial jargon. In addition to clawback, you might hear references to integrated pensions, state pension offsets and bridging pensions. Arrangements for 'integrating' work and state pensions began back when the modern welfare state was created, which led to more people paying National Insurance from 1948. Final salary (also known as defined benefit) pension schemes, both private and public, wanted to take account of more staff now receiving a state pension. They sought to prevent schemes themselves or individual members overpaying contributions or doing so unnecessarily, just to duplicate benefits. The rules for doing this and the calculations involved varied, and changed over time (if you're interested in the history, the House of Commons Library published a briefing on pension clawback in 2020). Nowadays, most private sector final salary pension schemes are no longer linked to state pensions. Public sector pension schemes stopped taking them into account decades ago, except for service before 1980. But some work schemes are still designed around them, and the result is that payments may be cut when a member reaches state pension age, to adjust for lower contributions made earlier by the scheme itself and its members. The size of the reduction depends on the scheme, but it is a fixed amount and usually works out at a few thousands of pounds a year. This has a bigger impact on someone with a small pension than a larger one. Clawback is sometimes embedded in a scheme's rules and will kick in automatically. However, some schemes offer workers the option of taking a higher 'bridging' pension - just until they reach state pension age - or a lower 'level' one. They work out the cost to end up being the same either way, but people who get the choice can find it convenient to have a temporarily higher income while they wait to get a state pension. This is why you should read pension documents carefully in the run-up to retirement, so you know where you stand if you are affected by clawback (or a myriad other important matters). If you are not sure, or don't understand the information you are sent, ring up or email your scheme and ask if it is has clawback arrangements. Staff should be prepared to take the time to answer and explain any impact on you individually - better now than when you reach state pension age and are surprised by a sudden cut in your work pension. Controversy over pension clawback If you do not know beforehand that clawback is going to reduce your work pension when you reach state pension age, you will understandably feel aggrieved - and it causes hardship in some cases. Clawback was condemned by some MPs as outdated and punitive during an adjournment debate in the House of Commons in April. Several cited constituents who had seen cuts of several thousand pounds, amounting in some cases to 13 per cent or 16 per cent of a pension, and there were calls for abolition of clawback. Criticism was aimed in particular at a Midland Bank pension scheme, now run by HSBC, which is opposed by the Midland Clawback Campaign and the union Unite. See the box below for HSBC's stance on clawback. Those against clawback often point out that it is regressive, in that fixed reductions disproportionately affect people with smaller pensions, who are often women. What does HSBC say about clawback? HSBC's position on [an amendment to] the state deduction has been consistent; it would constitute a retrospective change to the scheme that would benefit a particular group of members and would be unfair to other scheme members. It would increase the risk of grievances being raised by other pension scheme members both in the UK and globally and would set a precedent for further challenges to pre-existing valid terms and conditions that could lead to significant unplanned and unintended costs. Pension firm PensionBee says: 'As pension clawback is a fixed cash amount deducted from your pension - unlike other charges which usually deduct a percentage of the pot - its impact on your pension can vary. 'Those with larger pensions will be less affected, whilst smaller pots can see a substantial loss.' It offers the following example: 'If you received £50,000 a year from your workplace pension scheme, then a fixed pension clawback of £2,500 a year would equal a 5 per cent deduction every year. 'However, if you received £10,000 a year from your workplace pension scheme, then that same fixed £2,500 clawback would equal a 25 per cent cut to your annual pension income.' On its website, PensionBee says: 'Whilst most schemes have capped or withdrawn clawback, it's worth checking if you could lose out on a chunk of your pension. 'Those most affected are the lowest income workers, often women, and those seeking to retire early. 'If you're enrolled in a pension clawback scheme, it's likely you aren't even aware yet. One of the issues is poor communication, with few people affected aware of its importance.' PensionBee suggests asking your workplace pension scheme directly or checking your company handbook, and considering making additional contributions to offset the future loss from pension clawback. Will the Government abolish clawback? Successive governments have declined to force pension schemes to end clawback arrangements. The Conservative former Pensions Minister Guy Opperman said in 2017: 'These schemes were designed to avoid additional contributions from sponsors and members by taking account of some or all of the state pension when calculating the amount of occupational pension payable. 'The arrangement is set out in scheme rules which would have been available to members when they joined the scheme. 'Such arrangements are not a requirement of Department for Work and Pensions legislation. It would not be right to compel schemes to withdraw this integration arrangement. 'That would amount to a retrospective change imposing significant additional unplanned costs. Pension scheme rules on the calculation of benefits are many and varied, and must remain a matter for employers and scheme trustees to decide.' At the House of Commons debate on clawback in April, the current Labour Pensions Minister Torsten Bell gave a lengthy response which you can read here. He said: 'I appreciate that that type of scheme can be controversial, thanks to the change in the private pension income involved. 'All of us sympathise with anyone who expected a straightforward income increase when their state pension kicked in, only to find that things were much more complicated than that. I have read and listened to representations on this issue myself.' He went on: 'Integrating an occupational pension scheme with the state pension was a core design of some schemes, and that has pros and cons. 'It used to be a common feature of final salary schemes, covering almost half of schemes, according to one survey from the early 2000s, although it is far less common today.' Bell said all pension schemes are required by law to provide every member with basic information, either before they join or very shortly afterwards. If someone has not received clear communication they can complain via an internal dispute procedure, and after that to the Pensions Ombudsman. He added: 'I owe it to this House to be clear that we cannot retrospectively change the benefits schemes offered to their members. Any legislative change would affect all integrated schemes, risking the future of some that are less well funded.' What do other pension experts say about clawback? Rosie Hooper, chartered financial planner at Quilter Cheviot, has dealt with clients whose pensions are reduced by clawback. She says: 'Pension clawback often trips people up simply because they don't understand it, and they haven't factored it into their budget. 'The reality is that the reduction isn't usually huge, but it's the surprise element that causes issues.' Hooper says she always explains clearly what a client who is affected should expect. 'It's not that the whole state pension gets deducted which is a common misconception. It's about how some schemes reduce the income they pay once the state pension kicks in. It's not a hidden charge, but it needs to be properly understood.' She says starting to receive the state pension allows people to reduce the income they need to take from other sources, but the step-down in cash flow has to be planned for and built into a retirement plan. 'It's also worth remembering that the state pension used to make up a much bigger share of someone's retirement income,' she adds: 'Today, it's a smaller piece of the puzzle, which makes planning around it even more important.' Simon Taylor, head of defined benefit at pension consultancy Barnett Waddingham, says clawback was typically part of the design of defined benefit (final salary) pensions that remained 'contracted in' to paying second state pensions (Serps or S2P). 'The design meant that both the company and the members paid higher National Insurance, and members generally built up full state pensions,' he explains. People in pension schemes which 'contracted out' of paying more NI usually get lower state pensions. 'Clawback' is essentially a way to integrate the scheme benefit with the state benefit - if it didn't exist, pensions would have cost the company and member more,' says Taylor 'As a result, members would have had lower take-home pay over the course of a career.' He says there are lots of ways for clawback to happen, but obviously if it comes as a surprise it can be poorly received - and communications to scheme members weren't always as thorough as they are today. 'For people hitting state pension age now, it is all likely long-forgotten, and so can feel like a harsh practice,' he says. 'In reality though, the process has its roots in a sensible cost/benefit balance - and the alternative is being in a contracted-out scheme and paying lower National Insurance so getting a lower state pension, or being in a defined contribution scheme and likely receiving far less in the long run. 'Defined benefit pensions remain impressively generous - however, the responsibility sits with the scheme to ensure members understand the realities of their benefits and if and when any deductions will be made.'
