Thinking of retiring just on the State Pension? If recent reports are true, then you may need to seriously rethink those plans. Rumour has it that Chancellor Rishi Sunak is about to wield the scythe on the so-called triple lock pension rise guarantee in response to the Covid-19 crisis.
Under the triple lock system, pensioners can expect the State Pension to rise by the rate of earnings growth, or the rate of inflation, or by 2.5%, whichever is the highest. It’s the former figure that could well lead to the mechanism’s downfall.
As my Foolish colleague Harvey Jones points out, official projections suggest that earnings could rebound by almost 20% next year. Government will be feeling the pressure to slash the triple lock before the public purse takes an enormous whack. And fast.
The triple lock’s no ‘silver bullet’
It seems as though Britons need to get busier when it comes to saving for their retirement then. But, in truth, it’s something that all citizens should seriously consider doing anyway. Triple lock or no triple lock.
The mechanism was introduced exactly a decade ago and yet the number of UK pensioners being plunged into poverty is rising again. Even with the lock, annual State Pension increases have failed to keep up with rising social care costs.
Britain’s rapidly-ageing population, and the increasing strain it’s putting on the state’s finances, mean we may all have to dip even further into our pockets to fund our old age too.
Don’t rely on the State Pension
My opinion is that the State Pension should be viewed just as one component of your future income. Instead of relying on the benefit to fund your cost of living, you should be aiming to source the majority of your money in retirement from a pension and/or a well-balanced portfolio of stocks and shares.
Why? Well time and again share investing has proved to be a great way to generate big returns on your cash. Studies show that owners of stocks with a long-term approach to investing can expect to generate returns of up to 10% per annum. The good thing is that there’s a wide range of products to help you do just that.
I own a Stocks & Shares ISA. It allows me to invest up to £20,000 each tax year without having to share my spoils with the taxman. And I top it up at every opportunity. This has allowed me to build a robust (and diversified) portfolio comprising shares from the FTSE 100 and from lower indices too.
It’s also allowed me to concoct a great mixture of shares to bring me some handsome dividend income as well as exposure to top growth stocks.
Clearly, depending just on the State Pension is a recipe for disaster. It’s why I prefer to take control of my own destiny. And I’m confident it’ll help me to eventually retire in comfort.