I have been reading about the changes to the UK state pension today given all the news coverage on the UK media.
Have any of the other UK based FI bloggers though about what you will do when you do give up working?
If you are going to stop working in your 30s or early 40s – have you looked at the forecast for your UK state pension?
Are you planning/expecting to receive a UK state pension when you reach the relevant state retirement age or are you planning to put money into a private pension fund and use your FI funds to provide you an income instead?
If you are banking on receiving the new flat rate UK state pension when you reach state retirement then you need to look at how many qualifying years you have accumulated.
In my case, I have only accumulated 24 years so far and the new minimum to qualify for the full entitlement is 30yrs – so I need to contribute for another 6yrs to gain access to the ‘full’ entitlement of £150 per week full payment under this new scheme.
As I want to be FI before 6yrs is up, I will need to look at how I can reach the 30yr mark. As I will not have a job, I will not be paying any PAYE and therefore no National Insurance. I would be classed as ‘unemployed not claiming benefits‘ under HMRC rules.
To make sure I cover this additional 6 yr period, I need to pay voluntary NI contributions which are currently a flat rate of £13.90 per week [2015 published figure from HMRC site].
So if I factor in an annual or quarterly payment of this value to the HMRC, I will qualify for the full fixed UK state pension.
NOTE: when I become FI, I wil be considered ‘unemployed not claiming benefits‘ this also means that I will be restricted by the HMRC on what I can pay into a private pension. The HMRC like to cap the contributions that you can make and still get tax relief, you can contribute more but you will not get the tax relief. So while I am on the payroll – I will be making a few strategic pension contributions while I can to gain my tax relief.
I will be adding the voluntary NI contributions to my post FI expenses sheet so that I can make sure I have enough of an FI fund to cover this. Yes, I may actually work at different points between now and state retirement – just for the fun of it!! (Wow…that sounds good…working for fun rather than blind necessity) Any work which qualifies for NI payments will be a bonus to the contributing years.
What are your expectations when you reach true state retirement age?
Please leave a reply, it would be great to see how others are approaching this aspect of pension planning.