Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: “The state pension forms the very foundation of our retirement income - 66% of people admit they will rely on it ‘to some extent’. The level of reliance differs, with 9% saying they will be totally dependent on it while a further 19% say they will rely heavily on the benefit to meet their needs in retirement.
A full new state pension is currently £241.30 per week. While this will be sufficient for many people to cover their essentials, for the vast majority it will be nowhere near enough to live the lifestyle they enjoyed while they were working. In addition, the age at which you receive the state pension is currently on the rise and is expected to hit 67 in 2028. It’s then expected to start rising to age 68 between 2044-46, though the ongoing review into the state pension age could bring this forward. The reality is that if you want a retirement where you can afford more than just the essentials, or you want the flexibility to retire early, then you will need to make the most of your pension.
Analysis HL carried out with Oxford Economics showed 92% of people can meet their essential needs in retirement with a combination of the state pension and their pension savings. However, if you take the state pension out of the equation this falls dramatically to around 42% so the state pension continues to do most of the heavy lifting.
The good news is that auto-enrolment has boosted the number of people contributing to a workplace pension. This should mean that, over time, the number of people totally or largely reliant on the state pension will drop. However, if you want to fulfil all your plans for your retirement years, then it’s worth looking at how you can boost your pension.
Even relatively small changes can make a big difference. A 22-year-old earning £25,000 per year, contributing at auto-enrolment minimums throughout their career, could have a pension worth £477,500 by the age of 68. However, if they decided to increase their contribution to 10% per year at the age of 32, they would have closer to £550,000 in their pension at the age of 68. This either gives them a larger pension when they reach state pension age or the option to retire a bit earlier.”
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