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State Pension leaves 1 in 20 in ‘severe poverty.’ Could the FTSE 100 protect you in retirement?

The State Pension. It’s a topic that’s chills us to the bone here at The Motley Fool.

Clocking in at just £168.60 per week, the basic pensioner benefit in the UK is amongst one of the worst in Western Europe. It’s scant reward for a lifetime of hard work and threatens to leave millions of us living on the breadline.

You don’t need to just take our word for it, mind. A recent study titled ‘Pension Reforms and Old Age Inequalities in Europe’ found that the paltry State Pension has seen poverty rates amongst British pensioners explode during the past 30 years.

‘Severe poverty’ warning

According to the report, authored by Professor Bernhard Ebbinghaus of the University of Oxford, a shocking one in 20 (5%) of Britons over the age of 65 are now living in severe poverty.

This is up from less than one in every 100 (or 0.9%) back in the mid-1980s.

Speaking to the Observer this week, Ebbinghaus talked of the “rather ungenerous basic pensions with means-tested supplements” which have multiplied the numbers of elderly people living in severe poverty today. The term severe poverty is defined as having an income of 40% or less of the median average.

Ebbinghaus goes on to explain that the basic State Pension amounts to just 16% of average earnings in the UK and requires a long period of contributions. He added that “income-tested or means-tested targeted benefits are needed to supplement basic pensions and to lift them out of severe poverty,” add-ons which just one in six British pensioners currently receive.

Opportunity knocks

It’s clear, then, that just sitting back and hoping that the State Pension will support you in your later years is a recipe for disaster. Pensioners are having a tough enough time as it is and things threaten to get worse for later generations too — a recent report from a leading think tank, one that suggests the pension age should be hiked to 75, is fresh evidence of this.

There’s no good reason why you should find yourself struggling to make ends meet, though. An abundance of brilliant investment share-buying opportunities exist right now, which we can all use to build a bacon-saving nest egg through popular products like a personal pension, a Stocks and Shares ISA or a SIPP. Just ask one of the many ISA millionaires who are now living the life of Riley in retirement about how share investing can change your life.

One way to build your wealth pot through the years is through buying into a FTSE 100 tracker fund. These vehicles can’t completely protect you against temporary volatility in share markets but, over the long term, they’ve been proven to generate some stunning returns. And unlike buying individual shares, a tracker helps  you to spread the risk by getting exposure to a broad range of companies and can help you reduce the costs associated with stock investing too.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.