Those approaching their retirement years have been warned not to rely solely on the state pension for their income. The current full new state pension stands at £221.20 per week, or £11,502.40 yearly, although the actual amount most people receive is usually less.
According to the Pensions and Lifetime Savings Association (PLSA), a single person would need a minimum of £14,400 annually for a basic standard of living post-retirement; meanwhile, couples are recommended to have at least £22,400. April will see state pension payments rise by 4.1 percent with the full new amount increasing to £230.30 weekly, or an annual total of £11,975.60.
Looking at the figures, Pete Glancy, head of pension policy at Scottish Widows, warned: “Relying on the state pension alone won’t be sufficient to achieve an income which is equivalent to the most basic retirement living standard, as set out by the PLSA. Most people will need at least 20 percent more than that to pay for the basics, and workplace pensions are usually a great way of building up that additional pot of money, as your employer contributes towards your pension pot and there are also tax benefits.”
Scottish Widows’ research suggests that the median retirement income from pensions, including the state pension, sits at around £14,300, which puts a single retiree about £100 below the level required for a basic lifestyle in retirement.
In a similar warning, Andrew McMillan, founding partner at NOVA Wealth, cautioned that depending on your state pension for your retirement income “is risky and it’s unlikely to support the lifestyle most people want in retirement”. He noted that most individuals fortunately have “one of the best investment products” for their retirement thanks to having a workplace pension.
Mr McMillan elaborated: “Unless you don’t have a job or you’ve opted out, your company will be contributing ’free’ money to your retirement pot (as long as you are saving a bit yourself too). Relying on the state pension alone won’t be sufficient to achieve an income which is equivalent to the most basic retirement living standard, as set out by the PLSA.
“Your employer’s contribution to your pension plus the fact you get tax-relief on contributions, usually more than doubles the money being put away compared to saving it elsewhere. If you’ve maxed out your workplace contributions, it’s worth speaking to a financial adviser about additional ways to grow your retirement pot.”
Mr Glancy highlighted the Government’s efforts to boost pension savings, with auto enrolment now legislating that employers must provide a workplace scheme for their employees, with a minimum 8 percent total contribution. He suggested it would be beneficial to increase the minimum to 12 percent and to encourage individuals to save 15 percent if they can afford it.
He proposed some other ideas for expanding auto enrolment, stating: “We would ideally see some new reforms that lower the contribution age to 18 and remove the lower contribution threshold. Introducing an equivalent to auto-enrolment for self-employed people would also go a long way to addressing savings concerns for that category of workers.”
Under the existing rules, eligibility is restricted to those aged 22 and over earning at least £10,000 annually. However, new legislation has been passed to extend this to all workers, regardless of their earnings.