Are you worried about the future of the State Pension? A leaked Treasury report just seen by the Daily Telegraph suggests that you probably should be getting nervous. It suggests that pensioner benefits could come under attack as the government struggles with the costs of the coronvirus outbreak.
Along with tax increases and a cut to public spending, an end to the ‘triple lock’ protection for pensioners has apparently been looked at by 11 Downing Street, the report suggests. It goes on to say that it is “now likely to become necessary” for Chancellor Rishi Sunak to dump at least one of the Tories’ pledges to persist with the triple lock mechanism and to not raise taxes.
State Pension stress
The future of the triple lock was coming under increasing scrutiny long before the Covid-19 crisis emerged, a reflection of the financial strain lawmakers face because of a rapidly ageing population.
It now seems that the tool – which guarantees to raise the basic State Pension by 2.5%, the rate of inflation, or average earnings growth, whichever is highest – could finally be going the way of the dodo. That leaked report suggests that scrapping the lock would save the government around £8bn a year.
I don’t know about you but the news sends a fresh shiver down my spine. Britons have to wait longer and longer before they can retire and claim the State Pension due to recent rule changes. The possible axing of the triple lock raises the possibility that benefits will be meagre at best once one becomes eligible, too. Pensioners are already struggling with poverty in greater numbers. I dread to think of what government support elderly citizens can expect to receive 10, 20, or 30 years from now
It’s clear that just relying on the State Pension to support you in your autumn years is extremely risky business. It’s not a gamble that I myself am prepared to make. This is why I’ve built an investment portfolio of great growth and dividend stocks to help finance my retirement.
The recent volatility in financial markets is discouraging many investors from either starting or continuing to build up their own retirement funds. This is a mistake. It’s possible that more choppiness could be around the corner as the economic impact of Covid-19 becomes fully apparent. But over the space of many years it’s likely that these frantic share price changes won’t make a huge dent in total returns. In fact, recent share price drops provide some excellent buying opportunities for investors.
Retire in comfort
Studies show that the average long-term investor tends to make an annual return of at least 8% a year. This even takes into account periods of high volatility like these. Based on this projection, someone who invests £250 each and every month in stocks and shares can expect to make a handsome little (or should that be big?) nest egg of around £230,000 over 25 years.
This fresh threat to the State Pension is clearly worrying news. But it need not be the precursor to a catastrophe. With a little forward planning it’s still possible for British citizens to retire in comfort.
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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.