The State Pension is a worry for many, and rightly so. I would be worried if I had to live on an income worth just £8,546 a year, which is less than a third of the national average wage. It is the most threadbare possible safety net.
Face facts
There is only one way for you to avoid scraping through your final years in poverty, and you don’t need me to tell you what it is. You have to start investing in a pension or tax-free ISA, or maybe property if that is your bag, but you have to start saving somehow.
But before you do that, you have to do another thing – and that is face up to an ugly truth. The full new State Pension is worth just £164.35 per week for a single person, which is not very much money at all, and you only get that if you have made 35 qualifying years of National Insurance contributions, otherwise you will get even less.
Credit where it’s needed
If your annual income falls below that in retirement, then you will be dependent on state benefits, notably Pension Credit. The Guarantee Credit element tops up your weekly income if it’s below £163 for single people or £248.80 for couples. Quite obviously, this isn’t riches and even worse, half of all pensioner homeowners who are entitled to receive benefits fail to claim anything at all, losing an average £1,139 a year as a result.
A further 20% are claiming but receiving too little, doing without £855 a year, according to Just Group’s ninth annual State Benefits Survey.
You also have to face up to the fact that as the population ages, the state will no longer be able to afford its current, ahem, generosity. As life expectancy rises, there will not be enough people of working age to fund those in retirement. That is why the State Pension age is now being pushed back to 66 for both men and women, and will rise to 67 from 2026 (with further increases anticipated after that).
Lose your illusions
More than a million people already work beyond age 65 and the numbers are set to rise dramatically, but what will happen to those who cannot work on because of serious illness?
People have too many illusions about retirement. “I’ll work until I drop” is one of them, but sickness could put paid to that. “My property is my pension” is another, but downsizing will release less money than you expect, after costs.
Knuckle down
Please, rid yourself of these illusions. Then accept this truth: you have to save for retirement under your own steam, and this involves hard work, although it is easier if you have access to a decent company pension with employer contributions.
Even if you do, you need to invest regular monthly sums into either a personal pension or ISA. Here’s a rough idea of what you need to set aside every month to avoid State Pension misery. With cash paying little more than 1% a year, shares are still the best way to build a better retirement.