I received my letter from the Department for Work & Pensions on the very day I am writing this blog.  The headline of the letter states “Get your State Pension.” You are directed to a government website www.gov.uk/get-state-pension

In the letter you are given a unique invitation code.  You log into your account using the code then you answer a series of questions regarding you,  your spouse if you have one and the date of your marriage if you are married.  You have to give the DWP your bank details.  You are also asked to confirm dates you have lived outside of the UK and dates you have worked abroad.

The whole process only takes a few minutes.  The key date to  get right is the date of your marriage , if applicable.  Once completed you will receive an email from the DWP confirming you have successfully applied for your state pension.

Your state pension will be paid every four weeks in arrears by bank transfer into your bank account.

For me this is exciting news.  The thought of the government finally paying me something for a change after many years of paying lots of tax is quite appealing.  I tell my 87 year old mother that it is money for old rope.  I don’t actually have to do anything in return for a state pension income of around £10,000 a year.  She always retorts that I have earned it. I have paid National Insurance my entire working life.

I guess she’s right but it just feels like free money to me.

Of course, I am one of the lucky ones.  I am a member of the Baby Boomer generation.  I will receive a state pension.  I have told my children not to ever expect to receive a state pension, well not until they are aged 85 at least.  They are currently 28,30 and 32.

Most people are unaware that the state pension scheme is a pay as you go system.  In other words, there is no money set aside.  State pensions are paid for out of the general pool of taxation.  In other words, they are paid for from the taxation collected annually from the UK population.  It’s a scheme that cannot possibly last.  In fact it is already bankrupt in all but name.  It is actuarially impossible to fund the state pensions promised.

I fully expect the state pension age to keep being revised to later ages especially as life expectancy is forecast to increase from around age 80 to 120 in the next 20-30 years.   I also expect state pensions to be means tested.

Of course the government has been privatising state pensions for years.  It’s called auto enrolment or workplace pensions.  It’s a cunning government plan but of course it isn’t official.

What the government has also done is to all but get rid of state widow’s/er’s pensions.  If you reach state retirement age now your spouse will only be entitled to a state widow’s/er’s pension for three months after you die.  Previously there was a 50% pension for life for the survivor.  Therefore you should never defer your state pension except under exceptional circumstances such as if you are single.  Deferment of the state pension has become popular for people who have continued working post-retirement because it increases quite a lot for every year of postponement and it means you do not get taxed at your highest rate on your state pension while working.  After all, what’s the point in saving tax at 40%/45% if you die before taking your enhanced state pension, or you don’t live very long, in which case you lose 100% of your increased state pension? 40%-45% loss or 100% loss?  It’s a no-brainer, right?

What will I do with my state pension?  My plan is to reinvest it all into a personal pension with my wife as the future beneficiary when I die.  I can do this because I will continue working so I will have qualifying earned income which will mean that I will be eligible for tax relief on my pension contributions 100% funded by the government.  It also means I will leave her a personal pension on my death to which she is 100% entitled to enjoy for the rest of her life rather than just a measly three months’ state widow’s pension. You know it makes sense.*

*RISK WARNING

The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. The Financial Conduct Authority does not regulate tax planning, estate planning, or trusts.  This blog is based on my own observations and opinions.