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You won’t get rich with a Cash ISA! But buying UK shares could save you from the State Pension

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Can you imagine having to live on just £175.20 per week? If you haven’t pondered this question before then you definitely should. This is the amount British pensioners have to survive on under the new State Pension. And it means that buying UK shares to build a decent retirement pot has never been more important.

In fact, in future years that 175-odd pounds a week could begin to look pretty darn generous. Increases in the State Pension in recent years have been massively outstripped by the rising cost of living and ballooning social care costs. The gap is widening and those who haven’t yet retired face a serious fall in living standards by the time they hang up their work apron for the last time.

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Offsetting the State Pension with top UK shares

However, most of us have the capacity to avoid being plunged into pensioner poverty.

It’s been proven that long-term investors — those who buy UK shares and hold them for 10 years or more — make an average return of 8% to 10% per year. Thanks to the miracle of compound returns, this means that someone who invests £250 a month over 30 years in UK shares can expect to make anywhere between £352,000 and £516,000.

Image of person checking their shares portfolio on mobile phone and computer

What other investment class allows you and I to make such reliable and spectacular returns? Certainly not a Cash ISA where, according to Comparethemarket.com, the best interest rate sits at only 0.96%. Someone who saved £250 a month in one of these products would have a far-inferior £104,000 to retire on after 30 years. Studies show that this amount is insufficient to allow the average person to retire in comfort.

2 FTSE 100 heroes I’d buy today

In 2020, UK share investors have a chance to really light a fire under their long-term returns too. Why? Well the recent stock market crash leaves a huge list of top-quality shares trading at exceptionally low prices. This means that you and I can build a first-rate stocks portfolio at little cost, and then watch it soar in value as economic conditions improve and corporate profits rise.

National Grid is one UK share I’m thinking of buying for my own Stocks and Shares ISA today. Its defensive operations (keeping Britain’s power grid running) mean that profits are unlikely to rocket in the years ahead. But it’s a great buy for risk-averse investors, and particularly so at current prices. It trades on an undemanding forward price-to-earnings (P/E) ratio of around 15 times and sports a near-6% dividend yield too.

Vodagone Group’s another FTSE 100 share that’s also too good to miss at recent prices, I feel. It changes hands on a sub-1 forward price-to-earnings growth (PEG) multiple of 0.7 times. And it carries a huge 7.1% dividend yield too. This is a UK share that is in great shape to deliver delicious profits growth over the next decade. Why? Emerging market data demand is rocketing, while Vodafone’s huge investment in 5G technology should pay off handsomely as well.

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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.

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