23rd November 2015
New figures show how far the new state pension, expected to be announced as part of the Autumn Statement – falls below the national living wage and the need for action to achieve a comfortable retirement. Aegon’s regulatory strategy manager Kate Smith explains…
The idea of a living wage has captured the public’s imagination as a way to increase wages for the lowest paid. The debate surrounding exactly how much is required to maintain a decent standard of living shouldn’t just apply to those in the workforce and we should consider the equivalent income or ‘living pension’ retirees require.
We have a new State pension expected to be £151.25 per week, from next April.
The government has recently legislated for a national living wage of £7.20 per hour for the over 25s from next April, equivalent to a weekly wage of £252.
People should start asking themselves whether they can live on £100 a week less in retirement and, if not, whether they should start saving for their later life.
In reality the State pension won’t provide a comfortable retirement, and to make matters worse, some commentators, including NEST, have estimated that to achieve this most people will need a retirement income, or ‘living pension’ of £288 per week, considerably above the new State pension.
Bridging the gap between the new State pension and the amount needed for a comfortable retirement is not an easy task and it requires early financial planning.
The reality is that those on the living wage will struggle to make the savings required to fund a comfortable retirement.
The State will only ever provide a basic income in retirement. If people wish to bridge the gap between the state pension and a comfortable retirement then they need to build up an additional £200,000 of pension savings at age 65 rising to £220,000 if they wish to buy a 50% income for their partner payable following their death.
For those entitled to the full new State pension, and most won’t be initially, it might just about cover people’s basic living costs. But it certainly won’t leave room for luxuries.
It’s hard to imagine the Government setting a national ‘living pension’ as everyone’s financial needs and expectations differ, but it could help to promote this. It’s down to individuals to take personal responsibility and work out what sort of retirement they want to achieve and fund it accordingly.
There are a proliferation of online tools on the market, including Aegon’s online pension planner where customers can enter their expected expenditure and work out how much income they would need in retirement, and how much they would need to save to achieve this.