As it stands today, many Britons are getting towards retirement age and realising that their savings are a little on the low side. For example, according to research by Aegon, average savings for those aged 55-65 in the UK are just £106,000. Unfortunately, that amount of money is not going to go very far. As a result, it’s likely that many of those with low savings will be turning to the State Pension in retirement to get by.
However, those planning to rely on the state in retirement may receive a shock when they find out exactly what that entails. Here are four things you need to know about the State Pension.Â
It’s not much
Firstly, be aware that the State Pension is not a large amount of money. Think you’ll be retiring in comfort on it and taking regular holidays in Europe? Think again. Currently, the full new pension is just £164.35 week.
Could you get by on that? The average household spends around £26,000 per year in retirement to live comfortably, or £500 per week, according to Which. However, a couple with both receiving the State pension would pocket just £328.70 per week, which is a third less than the amount that the average household spends.
So a retirement on the State Pension is unlikely to mean golf trips in Portugal or Mediterranean cruises. Realistically, you could struggle to make ends meet.
You may be taxed on it
Furthermore, you could actually be taxed on your pension. You’ll pay tax on your payout if your total annual income adds up to more than your personal allowance. Your total annual income includes the State Pension you receive, as well as other income such as interest from investments or savings, any other taxable benefits you receive, money from a private pension, or earnings from employment if you decide to work part-time in retirement.
You may not be eligible
It’s also worth noting that you may not actually be eligible for the full payout. Much of the eligibility criteria depends on your National Insurance (NI) record. You’ll usually need at least 10 ‘qualifying years’ on record, in which you were working and paid NI contributions, or were receiving NI credits if you were unemployed, ill, or a carer. If you were ‘contracted out,’ (as many who have worked in the NHS or for local councils were) and paid lower NI contributions than others, you may also face a lower payout.Â
The State Pension age is rising
Lastly, another thing you should be aware of is that the pensionable age is increasing. Currently, men can claim it at 65 and women at 64. Yet these ages are set to change in the years ahead, with the government planning to raise the age to 68 in the future.
Weighing this all up, it’s a rather grim outlook for those who are looking to retire on the State Pension. The payouts are low and are unlikely to provide a comfortable standard of living in retirement.
If this concerns you, it’s probably a good idea to put a plan in place to boost your retirement savings. Act now and you may be able to salvage your retirement. A good starting point could be the free report on ‘financial independence’ below.