You may be hoping for a comfortable retirement, especially if you’ve spent decades slogging away in the workplace. Yet new research reveals that many are set to fall short of this goal, with a vast number only on track for a ‘moderate’ pension income.
So what else did the data show? And what steps can you take today to ensure your pension will deliver you a comfortable retirement? Let’s take a look.
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What did the research reveal about pensions and retirement?
According to Hargreaves Lansdown, less than 40% of people in the UK are heading for a ‘moderate’ income in retirement.
This worrying statistic is likely a result of many people relying solely on the State Pension for retirement. Right now, the new State Pension pays £179.60 per week. It’s paid to those who are aged 66 or over, though the qualifying age will increase to 68 before 2039.
According to the research, £179.60 accounts for less than 30% of earnings for the average worker in the UK.
While we can expect our spending to be lower in our late 60s, having to cut costs by as much as 70% is likely to be a huge challenge. This is particularly true if you’re hoping to be reasonably comfortable once you give up work.
How can you boost your pension?
If you fear your state pension won’t provide you with enough income in retirement, there are ways you can boost your pension pot. The first step is to look beyond the State Pension. That’s because a workplace pension, as long as you save enough into it, is likely to deliver you a higher level of retirement income than the State Pension.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, explains this in more detail: “If you want a decent lifestyle in retirement, you must build on the State Pension with other income sources such as workplace or personal pensions.”
Morrissey also explains how increasing your workplace pension contributions can be one of the easiest ways of boosting your private pension. She explains: “You can boost your pension by making relatively small tweaks, for instance, increasing your contribution whenever you get a pay rise or start a new job.
“You may also find that if you contribute more, then your employer will also boost their contribution to your pension, so it is worth checking to see if they are willing to do that. Over time, these changes can really add up and make a huge difference to your retirement income.”
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What are the dangers of relying on the State Pension?
While the full new State Pension pays a decent sum, it’s important to note that not everyone will get it.
That’s because you need to have made enough National Insurance contributions during your working years to qualify. As Helen Morrissey explains: “Many people also do not get a full State Pension. This could be because they were contracted out at some point in their careers or didn’t accrue enough National Insurance credits – you currently need 35 years’ worth – to qualify for a full state pension.”
If you feel there is a danger of you not making 35 years’ worth of contributions to get the full new State Pension – perhaps because you are currently self-employed – then it’s worth being aware that you can plug any gaps by making voluntary National Insurance contributions.
If you’ve already retired and don’t get the State Pension, Helen Morrissey suggests another option. She explains: “You should check to see if you qualify for Pension Credit. This will give you an uplift to your income as well as help with bills. It is a hugely important benefit that remains underclaimed.”
Looking to learn more about retirement? See our article that looks into the most commonly asked questions about pensions.
