A major misconception could leave retires with barely enough to cover the basics
Most people dream of a comfortable retirement, but some may be left with just enough to cover the basics due to a misconception about state pension. A money expert warned that people expecting state pension payments to go beyond just the basic necessities could be in for a surprise.
Antonia Medlicott, Founder and Managing Director of Investing Insiders, explained: “Whilst circumstances vary from person to person, the state pension is really only designed to cover your basic needs.” She also highlighted the exact amount people will need to get their dream retirement, combining personal savings with the state pension.
The latest Retirement Living Standards report states that the average cost for a ‘minimum’ retirement is £13,400 for a single person for each year in retirement. This is meant to cover the basic cost of living for a frugal person, including groceries, using a free bus pass and some minor luxuries like a TV licence.
She explained how savers can calculate the amount they’ll need depending on their circumstances and preferences: “The general rule of thumb is to have a pension pot consisting of around 10 times your annual salary before you retire in order to have a moderate to comfortable standard of living.”
“An annual pension income of around £31,700 for a single person, or £43,900 for a couple, puts you in the ‘moderate lifestyle’ bracket, allowing for more financial stability and flexibility than solely relying on the state pension.
“For a ‘comfortable lifestyle’, this amount rises to £43,900 for a single person and £60,600 for a couple, offering more financial freedom and allowing for more luxuries to enter your budget.”
The full new state pension is currently £241.30 per week after the April rate increase, equating to roughly £12,547.60 per year. This is nearly £1,000 short of what is required for the minimum retirement cost, so people who believe the state pension will be enough to pay for a comfy retirement could be at a loss.
As of 2023, only around half of pensioners eligible for the new state pension were getting the full amount. Meaning many were getting less than this amount per week because they didn’t have enough qualifying years.
These are years in which they either received National Insurance credits, paid National Insurance or bought voluntary credits to cover. Antonia added: “If you have less than 35 qualifying years, the amount of state pension you receive is reduced accordingly, with the minimum being around £68.90 per week with 10 years of contributions.
“The Government website offers a pension calculator service to help you find out how much you may be entitled to.”
People who do end up on a low income during retirement could be entitled to extra support from the DWP through Pension Credit. This is one of the most underclaimed benefits as many people mistakenly believe they earn too much to qualify.
Antonia explained: “(It) is completely separate from your state pension itself. It’s a means-tested benefit that’s used to top up your income, with the main form of eligibility coming from your average income.
“Singles with an income below £238 a week and couples with a joint income below £363.25 are eligible to claim for it, increasing income to these values.
“Additional Pension Credit is also available for people living with certain other circumstances, and those who receive Pension Credit may also be eligible for other support, including Council Tax reduction and Housing Benefit, so it’s important to explore all of the options available.”
