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Here’s how I aim to beat the State Pension starting today

In the midst of the Covid-19 lockdown, you might not be thinking too much about retirement investing. But I think you should, especially if you’re relying on the State Pension.

When we come out the far end of the coronavirus crisis, the government will be burdened by a huge rise in public borrowing. So a time of austerity in public spending seems very likely. And I see that putting pressure on the State Pension.

Changes in the retirement age have already paved the way for some savings. The traditional qualifying age of 65 years is gradually rising, and is set to reach 67 by 2028. We’ve also had rumours that politicians want to lift that even further. I reckon we’ll see people having to wait until they’re 70, and maybe even older, before too many more years have passed.

State Pension triple lock

The value of the State Pension could soon be eroding, too. Currently, pensions are protected by what’s known as the triple lock, but that’s coming under fire. The triple lock means the basic State Pension rises each year by 2.5%, the rate of inflation, or average earnings growth, whichever is highest. Scrapping that could save the government about £8bn a year.

What do we do about it? If there’s never been a more critical time to plan to beat the State Pension, I think there’s rarely been a time with better opportunities. I’m talking about investing in UK stock market shares, in a Stocks and Shares ISA, a SIPP, or a combination of both.

Stock market returns

Over the long term, the UK stock market has provided average annual gains of 4.9% above inflation. Some years will be bad, like 2020 so far, and some years will be much better. But overall, I think it’s the best way there is to beat the State Pension. The sooner you start investing for your pension the better, and the early years really do make a big difference. And starting when the stock market is down could give you an extra boost.

I have a lot of favourite income stocks that I think are great for a pension portfolio. And they’re all cheaper now than they’ve been for years. Now, some of them have suspended their dividends due to the Covid-19 threat. That includes Royal Dutch Shell, which previously had not reduced its dividends since the end of World War II. That’s how serious it is.

Dividend recovery

The banks have suspended their dividends too, at the behest of the PRA. And many others have gone into cash preservation mode. But this will pass, and dividends will surely be restored, even if they take a little while to get back to pre-crash levels.

To beat the State Pension I’d buy shares in those oil giants, banks, housebuilders, and other top FTSE 100 stocks with long dividend track records. Energy providers, pharmaceuticals companies… there are many that I think could find a good home in your pension investment portfolio.

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Alan Oscroft 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.