OVER one million people face a shortfall of £2,858 in retirement, experts have warned.
Anyone who has just the state pension to live off would run out of cash today, according to the Pensions and Lifetime Savings Association (PLSA),
A single pensioner needs an annual income of £14,400 to meet the what the PLSA calls a “minimum” standard of living.
It aims to cover all of a retiree’s basic needs as well as to have a small amount left over for leisure.
But the new state pension is currently worth just £11,542 annually.
That means that those without extra savings would exhaust their income by October 18, which the PLSA has branded “State Pension Shortfall Day” .
Around 1.2million retirees will need to contribute an extra £2,858 from a private pension or other savings to bridge the gap.
Pensioners aiming for “moderate” or “comfortable” retirement need more savings to cover annual expenditures of £19,758 and £31,558 a year respectively.
A moderate retirement is considered slightly more extravagant, while a comfortable one includes extra cash for multiple holidays abroad.
It means those relying solely on the full new state pension would run out of money even earlier in the year if their spending aligned with these higher standards.
The PLSA updates its retirement living standards each year to consider the rising cost of living.
They’re designed to help savers determine how much cash they’ll need when they stop working.
They don’t count mortgage payments or rent or any financial support you give your children or other dependents.
If you think you’ll still have those costs to meet when you retire, you’ll need to up your savings considerably.
Stephen Lowe, group communications director at retirement specialist Just Group, said: “At a time when government support for retirees’ finances is under scrutiny, State Pension Shortfall Day marks the day in the year when a pensioner living to a ‘minimum’ standard would theoretically run out of money if their only source of retirement income were the state pension.
“Despite two successive, significant increases, the full new state pension still falls nearly £3,000 a year short of meeting the ‘minimum’ of the PLSA’s Retirement Living Standards and is nearly £20,000 lower than the income required to support a ‘moderate’ standard of living.”
STATE PENSION BASICS
AT the moment the new state pension is paid to both men and women from age 66 - but it's due to rise to 67 by 2028 and 68 by 2046.
It is a recurring payment from the government most Brits start getting when they reach the state pension age.
However, not everyone gets the same amount, and you are awarded depending on your National Insurance record.
For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings.
The new state pension is based on people’s National Insurance records.
Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension.
You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit.
If you have gaps, you can top up your record by paying in voluntary National Insurance contributions.
To get the old, full basic state pension, you will need 30 years of contributions or credits.
You will need at least 10 years on your NI record to get any state pension.
The full rate of the new state pension is £221.20 a week – or £11,542 a year.
Under the old system, the full basic state pension is £169.50 per week and is paid to those who retired before April 6, 2016.
State pension payments are expected to rise by 4.1% in line with wages from April 2025.
This means someone on the full new state pension will see their payments rise by around £473 a year next spring.
THE ‘MINIMUM’ RETIREMENT
The PLSA’s minimum retirement living standard covers all of a retiree’s basic needs as well as having some money left over for fun.
It includes a week’s staycation each year, eating out once a month, and some affordable leisure activities twice a week – but no car.
The PLSA says to afford this retirement, you would need an annual budget of £14,400 as a single person and £22,400 as a couple.
It’s important to remember that the state pension will make up part of that income.
Retirees can start to claim the state pension at 66, though if you’re retiring after 2026, you’ll almost definitely see that minimum age rise.
Those claiming the full flat rate state pension now receive £221.20 a week, equal to £11,542 a year.
However, not everyone qualifies for the full amount.
If you had gaps during your working year, you may have paid less national insurance and would receive a smaller state pension to reflect that.
However, millions of retirees can still top up their national insurance contributions.
THE ‘MODERATE’ RETIREMENT
For a slightly more extravagant retirement, an individual will need an income of £31,300 a year or £43,100 for a couple.
The moderate retirement living standard includes a two-week holiday in Europe each year and eating out a few times a month.
Around half of single employees are estimated to be on track to achieve a minimum or moderate retirement, with couples more likely to be at the top end of this range.
THE ‘COMFORTABLE’ RETIREMENT
To live comfortably in retirement, the PLSA said an individual would need an income of £43,100 a year, and a couple would need £59,000 between them.
This includes a three-week holiday, plenty of money to spend on clothing and more on social activities such as birthdays.
It would also be enough to cover several UK minibreaks a year.
SAVING FOR RETIREMENT
ANYONE planning their retirement needs to do some careful calculations about how much they will need to afford the lifestyle they want.
A good starting point is the government’s state pension age calculator, which will tell you when you will receive your state pension.
Visit gov.uk/state-pension-age to find out more.
Pension calculators can also help you determine how much money you need to save to have the pension pot you want at retirement.
The earlier you start saving, the easier it is as your money grows longer.
And you’re not on your own when saving for retirement.
Your workplace will almost certainly contribute some money to your pension pot, too, and you get tax relief from the government, which reduces the amount you have to pay yourself.