Relying on the State Pension to fund your retirement is an extremely risky business. Concerns over how the public purse will support pensioners in the future have been steadily growing. And with good reason. The UK’s population is rapidly ageing. According to the Office for National Statistics, more than one-in-five citizens will be aged 65 or over by 2030.
Government is lessening the load on the public purse by raising the age at which the State Pension can be claimed. New legislation introduced in recent years means the age at which most citizens can claim the benefit rose to 66 earlier this month. It’ll rise to 67 in the latter half of the decade, and then to 68 several years after that.
The timing at which you and I will be eligible to claim the State Pension isn’t the only thing that we should worry about.
Fresh State Pension danger
The ‘triple lock’ mechanism has been vital for British pensioners. The instrument, which was introduced in 2010, requires the State Pension to match wage growth, or the rate of inflation, or increase by 2.5% each year, whichever figure is largest.
There’s been a growing chorus for the lock to be dumped, amid an expected surge in annual wage growth in 2021. And influential think tank the Centre for Policy Studies has chimed in on the subject this week.
It suggests the triple lock should be replaced by a ‘dual lock’. That would remove the promise of a 2.5% increase, irrespective of inflation and earnings. This will save the UK economy an estimated £2bn a year, it says. Its findings are likely to attract serious attention by government officials.
Protecting yourself with UK shares
It’s clear British citizens need to take charge of their own destinies. I’m not leaving myself at the mercy of a weakening public purse and the possibility of a lightweight State Pension. I also don’t want to wait until I’m in my 70s before retiring. The way things are going, this is the fate that likely awaits millions of adults in the UK.
This is why I invest at every opportunity in UK shares. I’ve opened a Stocks and Shares ISA, a vehicle which allows me to invest up to £20,000 a year. And the beauty of this particular product is that I don’t have to pay a single penny to the taxman either.
History shows us that, over the long term, UK share investors enjoy an average yearly return of at least 8%. These rates of return mean those who can invest a decent amount each and every month can avoid the perils created by a paltry State Pension. They can also expect to live a life of luxury in retirement.
That proven 8% average annual return means someone who invests £350 a month can expect to have made a minimum of £492,000 after 30 years. Building a handsome nest egg like this requires a healthy dedication to regular saving and the creation of a sound investment strategy. But, fortunately, there’s a wealth of information out there from experts like The Motley Fool to help you 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.