The full new State Pension in the UK is worth just £185.15 per week. And it falls short of being the best international State Pension by several places.
Better than some
The Mercer CFA Institute Global Pension Index for 2021 looked at 43 national retirement income systems around the world. And it highlighted strengths and weaknesses. It also graded them with a number score and a rating from A to D, with A being the highest.
The UK’s State Pension scheme scored 71.6 in the 2021 report with a grade of B. That doesn’t look too bad, right? But it’s not such a great outcome compared to the countries that did better.
Above the UK (in order of rising scores) we have Sweden, Finland, Australia, Norway, Israel, Denmark and the Netherlands. And at the top of the list Iceland scored 84.2 and received a grade of A.
In fairness, the UK scored quite well overall. And the report describes B-grade pension schemes as a “system that has a sound structure, with many good features, but has some areas for improvement that differentiates it from an A-grade system.”
Building an independent pot of money
One area for improvement I’d aim to target is the level of payment. Some £185 a week works out at just over £800 a month. And I wouldn’t like to get by on such a small amount.
However, I’m not waiting for improvements in the State Pension to occur before retiring. The best solution for me has been to take matters into my own hands and build an independent pot of money for retirement by investing in stocks and shares.
I’m on the home straight of my working life now. And my pension funds are well advanced and on course. But if I could turn back the clock and do things over again, I’d start investing in pension schemes, SIPPs and Stocks & Shares ISA’s as soon as I could.
The main driver of long-term returns from the stock market is the power of compounding. And the great thing about compounding is it works best over long periods. So I’d choose to invest in a mix of low-cost index tracker funds, Investment trusts and the shares of individual companies.
Modest monthly investments
There are no guarantees when it comes to investing. And it’s always possible for me to lose money, at least over shorter time frames. But if I invested £150 a month and earned an average annual return of 6%, I’d have enough to double my retirement income. After 40 years of investing like that, I’d end up with an investment pot worth around £287,625.
And with that money, I’d target ways of earning passive income to use in retirement. For example, a low-cost passive index tracker fund following the FTSE ALL-Share index will yield a dividend income of around 4% right now. And with £287,625 invested, that would provide income worth about £958 a month.
This is just an example of what may be possible from investing in stocks and shares over a working lifetime. It’s not a certain or guaranteed outcome because all shares carry risks as well as positive potential. Nevertheless, I think it illustrates that even modest monthly investments could grow to a worthwhile investment pot over time.