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Millions unclear on state pension basics a decade after reforms, AJ Bell finds

The findings highlighted widespread confusion around key aspects of the system, including eligibility, value and retirement age.

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Millions of Brits still lack a clear understanding of how the state pension works, despite major reforms being introduced 10 years ago, according to research commissioned by AJ Bell.

The findings highlighted widespread confusion around key aspects of the system, including eligibility, value and retirement age.

Just 12% of respondents said their knowledge of the state pension was ‘excellent’, while 20% described it as ‘poor’.

Understanding of eligibility rules remained particularly low, with only a quarter (25%) correctly identifying that a 35-year National Insurance record is required to receive the full state pension.

Meanwhile, 43% of people said they could not estimate its annual value.

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The research also pointed to confusion around the state pension age, which is currently rising from 66 to 67 between now and March 2028.

Only 19% correctly identified the current age, while many respondents either believed it had already increased or remained lower.

Tom Selby, director of public policy at AJ Bell, said: “A decade on from landmark reforms designed to simplify the state pension system and millions of Brits remain utterly confused about how the rules work, how much they can expect to receive from the state in retirement or when they will receive it.

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“When quizzed on the key elements of the state pension, just 19% correctly identified the state pension age as 66, while 40% thought it had already risen to age 67 and 12% mistakenly thought it was still age 65.

“Given the state pension age is rising to 67 between now and 2028, and again to 68 between 2044 and 2046, this confusion is likely to get worse before it gets better.

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“Although people often aren’t sure of the precise details around how much they’ll get and when, they are confident of one thing: state pension age is only going up.

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“Further increases to state pension age are certainly a possibility, with a rise to 68 already on the cards, albeit not for another 20 years. A lot could change between now and then so we could see further increases and an accelerated timetable, although any change would need to be planned and publicised well in advance.”

He continued: “There are a number of reasons that could explain Brits’ foggy understanding of the state pension basics.

“For those who are younger, more immediate financial needs will likely take priority and how the state pension works today might feel immaterial given it is likely to change completely when they become entitled to the benefit.

“The transition from the ‘old’ to the ‘new’ state pension will also take decades and people’s entitlements will vary as a result, potentially contributing to the low proportion of people (15%) correctly identifying the full new state pension is worth between £12,000 and £13,000 per year.

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“The shift to the new state pension, combined with increases in the state pension age, may also have contributed to the lack of clarity about how the system works.

“Regardless of the reasons, for government these findings should be worrying, as a population which doesn’t understand how the state pension works are less likely to build a private pension that will sustain them through retirement.

“Ensuring more people understand what the state will provide in retirement and therefore how much they need to set aside themselves is absolutely critical.

“As part of this, policymakers need to prioritise stability in the wider pensions system, both in terms of state pension policy and the tax rules affecting millions of people building their own pot. This should include a long-term roadmap for both state pension reform and a commitment to maintain key pension tax incentives, namely tax-free cash and upfront tax relief, for the long term.”

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