Pensions: Is a state pension enough?
PensionsLearn why the state pension alone isn’t enough and how extra savings can help you afford the retirement lifestyle you want.
Transcript
If you only have the state pension, you may find that it’s not enough to live on. The state pension can help with essential costs such as food and energy, and the fact that it rises each year is also valuable in helping your income keep pace with the rising cost of living.
But a state pension is unlikely to cover housing costs, holidays, renting a car or helping your family. Researchers at Loughborough University have developed retirement living standards to help individuals picture what kind of lifestyle they could have in retirement and the costs involved. The figures estimate how much someone may spend in retirement across three different living standards. They focus on how much you can expect to spend, not the income you need. They assume you own your own home with no mortgage, so you may need to add or reduce other costs such as mortgage or rent. Also, remember, any income above your personal allowance may be taxed, so plan for that too.
The standards aim to offer a clear and realistic view of people’s retirement spending in the UK, helping you use your current lifestyle and cost of living as a guide for what you might need in the future. The figures can be shown using two different options, ‘two-person’ household for those living with another person and having a joint expenditure or a ‘one-person’ household for those living alone on one income. Within the spending categories, the specific breakdown of costs and how they are shared will vary from household to household.
In the worst case scenario, if your total pension income is very low, for example, because you don’t have enough national insurance contributions for full state pension or didn’t have a workplace or personal pension, you can apply for pension credit, which will top up your income a little. However, many people will find that to have a comfortable standard of living, they will need income from workplace pensions, private pensions, individual savings accounts, also known as ISAs, or cash savings, in addition to state pension.
So, in order to secure a more comfortable retirement, it’s best to start making contributions to a personal pension or savings account. This savings pot, plus your national insurance contributions, will mean you can live well when you stop working. Remember to start early, and even small contributions can make a big difference in the long term.
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