The government provides a small pension to eligible people for later life. However, at its current levels, is the UK State Pension enough to retire on? Or is it more of a top-up to your other income in retirement? Let’s take a look.
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How much is the UK State Pension?
For a full breakdown of the ins and outs of how much state pension you can get, take a look at our handy guide.
As a general overview, if you are eligible for the new State Pension, then for 2020/21 you can get £175.20 per week. This works out at about £9,100 per year. The State Pension rises each year, at least in line with inflation.
This figure is the full amount that you can receive. In order to get the maximum, you’ll need to have made 35 years’ worth of qualifying National Insurance contributions.
However, it’s not only about how much you get – it’s also about when you can get it. At present, the UK State Pension age depends entirely on when you were born. And it’s a bit of a movable feast.
You can check your pension age on the gov.uk website, but for the moment, most eligible people will receive their State Pension at the age of 67 or 68.
Is it enough to retire on?
The UK State Pension is there to cover basic needs. Unfortunately, it is not really enough for a decent standard of living.
When retirement planning, it is a good idea to think about what kind of lifestyle you want later on in life. According to the Pensions and Lifetime Savings Association (PLSA), a single person would need at least £10,000 a year for a basic standard of living in retirement.
However, if you plan to eat out a few times a month or have a two-week European holiday each year, you will need around £20,200 a year. If you want regular beauty treatments, long haul holidays and a new car every five years, this increases to £40,000 a year. And so on and so on.
The main point is that even if you just want a basic standard of living, the UK State Pension is not quite enough to retire on. Even with state help for things such as rent or council tax, it would mean years of penny-pinching.
When it comes to planning for retirement, the State Pension should probably be seen as an add-on to your other pension income.
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How much pension do I need?
As with anything financial, how much you need to save into your pension depends on your individual circumstances. It will depend on how much you can afford to save, how many years you have to save and what you want your retirement to look like.
When planning ahead, it is worth considering what your expenses are likely to be in later life. For example, the cost of your home or the type of lifestyle you want to enjoy.
For a better idea, you can use the Money Advice Service pension calculator to estimate the amount of pension income you could get from a personal, stakeholder or workplace pension.
If you aren’t currently saving into a pension, then it could be a good idea to set one up. If a workplace pension isn’t available, you can set up a personal one. Investing solutions such as Wealthsimple and Wealthify have personal pension products that can be used to supplement your State Pension when the time comes.
As a general rule of thumb, the earlier you start saving for retirement the better. Even with the State Pension on offer, you’ll probably want to build up your own pension pot in order to enjoy your golden years.