How certain are my client’s state benefits?

death and taxes

The old adage “there’s nothing certain except death and taxes”, sadly did not include pensions, not even the state pension. Behavioural science suggests that the further we look into the future , the more we crave the security of certainty. But life (and death) aren’t like that and anyone who has ever conducted a cash flow forecast knows they are putting their finger in the air.

While we can philosophise  about the “ineluctable modality of later life”, that won’t get us very far. People crave certainty and relative to other sources of retirement income, the state pension comes up with it. If you go to and input your Unique Tax Payer Reference , you will see something like this.state pension ht

This is my amount, I can expect a pension from my 67th birthday but this is not guaranteed. As the WASPI women have found out, the date at which state pensions are payable is a moveable feast and it moves with the Government’s estimate of life expectancy for all of us (us= Uk population).

The WASPI women expected to retire earlier than men and they’re finding out that that advantage has been taken away from them. This is because of UK and European law which requires state pensions to be equalised. During the last 30 years , the law has changed. Generally the law has changed for the betterment of women, but in this case it has worked for the worse. Our retirement finances are subject to the vagaries of the law and this is one reason we must keep our fingers crossed.

Can I be sure that the Government won’t push back my retirement age (as it already has)? Well no! But the closer I get to my State Retirement Age, the less likely is it that I’ll have to wait longer. There is still a corridor of uncertainty but that corridor is getting narrower! The WASPI women claim that they heard about their having to wait longer too late and that the Government hid this information from them. They have some grounds to be aggrieved, part of the contract Government has with all its citizens is to keep them informed.

Nowadays we have to keep ourselves informed -or if you are a pensions adviser – help your clients inform themselves. Things are liable to change and it’s not just the “when”, it’s the “how much”. At the moment, that £159.55 is good only for this year.

The rate of basic State pension is increased from April each year by at least the level of growth in average earnings. The current Government’s policy is that the basic State Pension will increase each year by the highest of:

  • growth in average earnings
  • prices increases
  • 2.5 per cent


For instance, in tax year 2016/2017 the basic State Pension rose by 2.5%. But in April 2018 it is likely that price increases will be in excess of 2.5% and earnings growth even higher. This is known as the triple-lock; you are guaranteed (for as long as the triple lock survives) an increase in your state pension entitlement of the best of the three numbers bulleted!

It would be good if we knew what inflation was going to be and it would be good if we were to know the triple lock would last for ever. The truth is we don’t know either of these things. We can only guess.

So far I’ve been talking about what I know about myself, the forecast in this article is my forecast. If I scroll down on my forecast I find out more interesting information about me. I discover that the amount I can expect is dependent on my contributing more national insurance.

state pension ht 2

To get my final £14.20 per week, I need to work for another four years. That’s because I spent some of my life not contributing enough national insurance. I don’t owe money, I was contracted out of the state pension and so currently only have 31 out of the 35 complete years I need to get my full entitlement.

state pension Ht 3

It looks like the 11 years when I didn’t contribute enough, gave me two full years credits, so I have the equivalent of 31 years national insurance contributions.

This is really helpful to my retirement planning. It tells me that I have every chance of getting to my full state pension , despite being contracted out of the second state pension (what used to be called SERPS) for a number of years.  This certainty I have in numbers.

Talking people through their entitlement to the State Pension is an incredibly important and rewarding part of our job. People who I do it for, are really grateful, especially when I explain the small print and put their expectation in the context of others. If you advise others, then make sure your clients have their HMRC User ID and password to hand (and an internet connection handy) when you do!

You’ve never had it so good  – the politics of the state pension.

The idea of the triple-lock would have been unthinkable for much of the past fifty years. Wage and price inflation have been far too high for far too many of these years for such a promise to be affordable. The triple lock was introduced in 2010 by the coalition Government. It is proving very popular, especially by those in retirement (who are good at voting).

In its quinquennial review of the national insurance finances in 2014, the Government Actuary made it clear that the triple lock was not affordable for ever, the triple lock was -to GAD- a way of getting the State Pension back up to a level where it provided everyone with a minimum safety net in retirement. We may feel that £8,325 pa is too little to live on, but it is a lot more than could have been expected – even in 2010.

The Government Actuary points out in his review that “private sector provision” and in particular its increase due to “the impact of auto-enrolment” and the “pension freedoms

“could open up consideration of phasing options starting in 2020 for securing greater sustainability of State Pensions and the National Insurance Fund”.

This is a coded way of saying that provided we are saving more, the Government could turn off the triple lock by the end of the decade.

We may look back at this decade as the “good old days”, at least for state pension. The clear message for your clients is that none of us expect the state pension to increase into the next decade as fast as it is at the moment and that the nice surprises we get when we revisit the state pension portal, are unlikely to last. There is some certainty in that.


What else can you expect from the state?

Most people who can afford to pay for financial advice , will be dependent on the system of further state benefits in retirement , known as Universal Credit. However, the level of those benefits and how and to whom they come payable, is important, especially when – like me – you talk with people in the workforce who are on low incomes.

The certainty that these benefits being available is unfortunately low. The universal credit system is not properly understood because it is complex and often unfair. The acknowledged expert on these matters is Gareth Morgan (the Ferret). If you would like to bone-up, as I do, you can visit the Ferret website –

To be fair to Government, Universal Credit is new and has yet to bed down, we can be reasonably certain that the current unfairness will reduce over time. Never the less, the reality for most people on very low wages is that – unless they are very careful – they could reduce their entitlements to benefits under Universal Credit, by being seen to draw income from private pensions.

It is worth reminding wealthier clients who are concerned about the uncertainties of their retirement planning, that the uncertainties for those who do not have their wealth are much greater. The increased dependency that poorer people have on state pensions and benefits in retirement are much higher than those of us with money.

There is one final point which is important, but often ignored , with regards the payment of income in retirement. Money arising from pensions , whether state or private, is not subject to national insurance and is therefore more valuable in the hand than “earned income”. This , combined with the increased age-allowance and certain un- means tested universal benefits (bus passes, TV licence reductions etc.) mean that life in older age is financially less taxing.

Are their risks from perceived inter-generational inequalities?

But, as with the benefits themselves, the taxation of benefits is not written in stone. Economists such as Paul Johnson are keen to point out the increasing inter-generational transfer from the young to the old which is sociologically and politically unsustainable. While there is good reason for Governments to reward the old , these do not include bribing them for their votes. The baby booming generation , who form the majority of financial adviser’s clients, should be aware that they cannot have it their own way – forever!

The certainty of the current benign conditions pertaining to state pensions and benefits – needs to be viewed in the light of these large “macro” considerations. in the final analysis, the nation has to ask of itself – “can we afford all of this?”. Unless we see a substantial increase in productivity (GMP) , I think we can be certain that the answer to that question is “no”.

death and taxes 2

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in accountants, actuaries, advice gap, pensions and tagged , , , , , . Bookmark the permalink.

3 Responses to How certain are my client’s state benefits?

  1. Gerry Flynn says:

    I have over the 35 yrs threshold to qualify for a full state pension in 2024 now but I will not get it because I was C/out. From your example of your self I can’t see how you manage to get the the full state pension even though you were c/out for a period just like me.

    Liked by 1 person

  2. henry tapper says:

    I can’t comment on your record Gerry, but suggest you take it up with the Government. I take it you have been on the site using your USER ID and passport? My contribution record starts in 1977 so I have had a total of 40 years already, of which 11 are incomplete. I assume they add up to another two years with four to go.

    If you follow the process through, then the key for you is to find out which years are incomplete and challenge them.

    Liked by 1 person

  3. Kind words Henry, thank you, but things aren’t as simple as you think, I’m afraid.
    The state pension changes really do split older people into two groups. The older older people carry on getting, what is now called, basic State Pension (bSP) while the younger older people who reached state pension age after April 2016 get the new State Pension (nSP). These two groups are treated differently for means tested benefits.
    Universal Credit is actually the new means tested benefit for people of working age, which means those below state pension age for women (still slightly different for a bit longer). As pension age rises people will stay on the working age benefit for longer, which is a shame as the basic amount for older people’s means tested benefit is about twice as much as for those of working age.
    Pension Credit is the main benefit for older people, topped up by Housing Benefit, for those paying rent, and Council Tax Reduction. Pension Credit is itself split up into two very different bits, at the moment, with more add-ons coming in future. Guarantee Pension Credit (GPC) is the core Minimum Income Guarantee top up benefit. Savings Pension Credit (SPC) is the somewhat bizarre concoction that was designed to reduce the penny for penny deduction of GPC; it’s complex, its value has been reducing sharply over the last few years and it is only payable to people receiving bSP. At some point, receding into the future, there will also be a Housing Credit for older people needing help with rent and a way of providing support for children. These have to be introduced because when Universal Credit is fully rolled out (also receding into the future because of well-publicised problems) then Housing Benefit and Child Tax Credit will be abolished because the help from them is a part of UC. Further changes to PC which have been announced, with indefinite dates, include introducing a capital cut-off point. At the moment, unlike with all other means tested benefits, there isn’t one so that people can continue getting the benefit with substantial amounts of capital. There’s also a set of rules coming in about ‘mixed-age couples’. At the moment people qualify for the older people’s benefits when the oldest member of a couple reaches women’s state pension age. In future it will be when the youngest member of a couple reaches that age. On today’s PC rates, using the average age difference of married couples, that means a loss of about £15,000 over three years. The toyboy/trophy wife couples will find themselves hit even more, of course. The difference in rates between older and working age benefits means that a single person depending on pension credit, who then forms a couple with a person under pension age, will end up with less money for the two people than they had as a single person.

    Liked by 2 people

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