In retirement, millions of people across the UK turn to the State Pension for income. For many people, it’s their only source of income after they have stopped working. However, the State Pension is just £168.60 per week, or £8,767 per year, which is not a lot of money when you factor in the cost of living today. Living off State Pension income alone in retirement is not likely to be easy.
To make matters worse, many retirees are actually receiving far less than £168.60 per week. Indeed, according to a recent study by Canada Life, less than half of retirees who are able to claim the new State Pension are actually receiving the full amount. The insurance group found that in reality, nearly two out of four (38%) pensioners are receiving less than £150 per week in State Pension income.
What’s going on?
Why are people not receiving the full State Pension?
Well, there are a few reasons. In some cases, people have National Insurance (NI) records that are incomplete. These people may have lived overseas for a few years or taken time out of work to care for loved ones and, therefore, they have not paid NI for the 35 qualifying years required under the new rules.
In other cases, people were ‘contracted out’ of the State Pension in the past. This is where people opted to reduce their NI contributions in order to pay into a private pension.
What can you do about it?
What this research ultimately highlights is that it’s never been more important to take control of your finances and build up some retirement savings so that you’re not forced to live off the State Pension in retirement. If you can put a retirement savings plan into place early enough, you’ll give yourself a good chance of living a comfortable lifestyle in retirement.
One easy way to save
While there are many ways you can save for retirement, one of the most effective ways to save is to put money into a Self-Invested Personal Pension (SIPP). These retirement accounts have several advantages.
For starters, with this type of account you’ll receive top-ups (officially known as tax relief) from the government whenever you put money into the account. For example, if you’re a basic-rate taxpayer you’re entitled to a 25% top-up on your contributions, so an £800 contribution is topped up to £1,000.
Second, the other big advantage of the SIPP is that it allows you to hold a wide variety of investments including stocks and funds, meaning you’ll have the opportunity to grow your money at a healthy rate in the lead up to retirement. Capital gains and income generated are also tax-free, which is another big benefit.
Saving for retirement doesn’t need to be complicated. But it does need to be a priority. Put a savings plan in place sooner rather than later, and the low State Pension won’t be an issue for you when it comes time to retire.