The State Pension is rising 4%! But will it be enough to help you retire in luxury?

Good news: State Pensions benefits are about to rise. Bad news: the benefits are still pretty dire. Royston Wild examines what the hikes means for pensioners now and in the future.

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The paltry size of the State Pension is something that we here at The Motley Fool dedicate a huge chunk of our time to discussing.

So low are pensioner benefits in the country that there’s a fast-growing segment of elderly society who find themselves living in poverty and unable to afford even basic amenities. And it’s our job here to help you take steps to prevent you from suffering such a fate in retirement.

Pensions rise

In some rare good news on Wednesday, then, it emerged that the State Pension will rise by just under 4% from April 2020.

Under the current ‘triple lock’ mechanism the state benefit has to rise by either the rate of Consumer Price Inflation (CPI), the rate at which wages are rising, or by 2.5%, whichever is highest in September. With the CPI gauge registering at 1.7% for last month and wage growth coming in at 3.9%, the government will take the latter figure as the benchmark by which to raise the pension.

So what will this mean in your pocket? Well those who became eligible for the full State Pension after April 2016 will be able to claim £175.20 per week, an upgrade of £6.60. Meanwhile those who began claiming before the start of the 2016–17 tax year will see their weekly benefit rise by £5.05, to £134.25 a week.

Is it enough?

On the one hand, news that pensioner benefits will rise at a larger rate than the 2.5% minimum is to be celebrated. But on the other, this upcoming rise isn’t likely to make that much of a difference to pensioners’ overall spending power, even if it runs ahead of current inflation in the UK. And particularly so as these gains are swallowed up by the loss of other benefits like the free television licence.

Meanwhile, that year-on-year rise does nothing to assuage the fears of those who remain some way off the age at which they’ll become eligible for the State Pension. There’s plenty of chatter going on in the corridors of power that the triple lock mechanism could go the way of the dodo sooner rather than later. And of course the age at which citizens can claim pensioner benefits is getting further and further away, too.

Take action!

It’s clear, then, that Britons of all ages need to take charge of ensuring we will all have enough to live on post-retirement. Even with those rises due next April, the best one can expect to receive per year is just £9,110.40. I don’t know about you but I can’t imagine having to live on such a paltry amount.

By making your spare money work wisely for you, though, it’s possible to avoid the pensioner trap and still live a life of comfort, or even luxury, in retirement. This means avoiding low-yielding savings products like Cash ISAs and investing your money instead, starting early, and setting aside a decent amount per month to help you meet your retirement goals.

It’s been proven that stock investing can generate returns of up to 10% a year over the long term. And it’s never too late to begin: someone with no savings at all who can set aside £300 each month can create a chubby pension pot worth above £215,000 after 20 years, based on past experience. And there’s a wide selection of brilliant shares out there to help you do just that.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

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