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28 Aug 2014

How Women Can Boost Their Pension Savings By 20%

Recent changes to state pension rules have severely impacted a generation of millions of working women, so it comes as good news that This Is Money recently reported a loophole allowing women due to retire before April 2016 to increase their retirement income by 20%.

Existing rules reward savers who put off claiming their state pension; when combined with new budget reforms, this means that eligible women may be able to boost their savings by potentially tens of thousands of pounds. Although these rules apply to men, it is women who will see the greatest increase in earnings, as they are often paid less or have worked for less time.

A higher retirement age means that some women will miss out on years of state pension that those who are slightly older will be able to access. Similarly, they miss out on the new, higher state pension that will be introduced in April 2016. Women retiring before this date, then, will have to work longer and receive less of a pay-out.

However, although they were previously obliged to turn their pension into an annuity, new rules will allow them to postpone their pension, meaning they can receive a generous 10.4% increase in value for each year they defer. They will then be able to withdraw small sums from it to live off of.

The article offers an example of a 62-year-old woman with a £30,000 private pension pot. Currently, she would have to cash in her savings and buy an annuity paying out just £850 a year. Combined with the state pension, her income would total just £6, 850 a year.

From next April, however, she could cash in her savings and defer her state pension for three-and-a-half years – allowing her to live off £8,250 a year from her private savings. By 2018, she could begin claiming the state pension which would have risen to £9,000 a year – over a fifth more than it would have been.

Those approaching retirement are encouraged to speak to a financial adviser about whether this option is right for them.

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