A fifth of adults retiring this year are planning to rely on the state pension as their main source of income once they stop working, new research reveals.
The figure rises to a quarter for female retirees. Some 20 per cent say they are retiring later than planned as they haven’t saved enough to stop working.
Others are turning to the growing trend of ‘flexi-retirement’, with 66 per cent of new retirees planning to carry on working in some form during their retirement, according to the study by financial services firm Abrdn.
Retirement plan: More than a quarter of those retiring this year say they don’t know how to mitigate the impact of inflation on their income
Almost a quarter of those planning to continue working say they are left with little choice due to the cost of living crisis, the research found.
Some 27 per cent of those stopping work in 2022 say they don’t know how to mitigate the impact of inflation on their retirement income.
The old basic state pension is currently £141.85 a week, topped up by additional state pension entitlements like S2P and Serps, and the new flat-rate version is £185.15 a week.
The last annual increase in the state pension was 3.1 per cent, well below the rate of inflation which is currently running at 9 per cent, due to the temporary suspension of the triple lock.
The Government has pledged to reinstate the triple lock – under which the state pension rises by whichever is the highest of inflation, earnings growth or 2.5 per cent – for next April’s increase.
Last year the number of pensioners in poverty passed 2million according to Age UK. Since 2013/14, the figure has risen by almost a third from 1.6million.
Carolyn Jones, head of money and pensions guidance, policy and strategy at the Money and Pensions Service, tells This is Money that she is not surprised by the results of Abrdn’s survey.
Research from MaPS’ financial wellbeing survey shows that 44 per cent of people who have reached state pension age say it is their main source of income.
Within that figure there are stark differentials, as 54 per cent of women in the group say it is their main source of income compared to just 33 per cent of men.
And 64 per cent of those who are in the lowest wealth bracket also rely on the state pension as their main source of income.
MaPS, backed by the Department of Work and Pensions, provides free advice and support for financial wellbeing.
Retirees relying on their state pension should check if they are entitled to pension credit, which can also open the doors to additional discounts and savings
Paul Titterton, a digital retirement advice expert at Abrdn, says: ‘It’s worrying enough that one in five people are intending to rely solely on the state pension to fund their retirement, but this is happening at a time of high inflation and the cost of living crisis, meaning we are likely to see a growing retirement poverty gap.
‘While the state pension is a vital part of funding retirement, it’s crucial that retirees also weigh up any other savings and assets that they may have on making the decision on whether they can afford to retire, including any funds they have built up through auto enrolment at work.’
To help address the lack of preparedness among many retirees, Abrdn – formerly Aberdeen Standard – has launched a campaign encouraging consumers to seek advice under the premise of ‘It’s ok not to know’ and offering advice to those who would like it.
The Pensions and Lifetime Savings Association details several different types of lifestyles and how much it would cost retirees each year to fulfil that living standard.
According to this, the minimum income needed on top of the state pension per year to cover all basic needs and expenses is £1,272.
However, for someone aiming to enjoy a moderate retirement with more financial security and flexibility they will need an extra £11,172 of income annually on top of their full state pension.
How much is the state pension?
The basic state pension is currently £141.85 a week, or around £7,400 a year. It is topped up by additional state pension entitlements – S2P and Serps – accrued during working years.
The two-tier state system was replaced in 2016 by a new ‘flat rate’ state pension. This is currently worth £185.15 a week or around £9,600 a year.
People who have contracted out of S2P and Serps over the years and retire after April 2016 get less than the full new state pension.
But they can fill gaps in unpaid and or underpaid National Insurance in previous years, and build up more qualifying years if they have enough time between now and state pension age.
Workers needed to have 30 years of qualifying National Insurance contributions to get the old state pension, but they now need to have 35 years of contributions to get the new flat rate state pension.
But even if you paid in full for a whole 35 years, if you contracted out for some years on top of that it might still reduce what you get.
Everyone gets the option of deferring their state pension to get more in their later years. You can check your NI record here.
Dr Linda Papadopoulos, a psychologist, author and broadcaster, says that many people put off thinking about their pension because it always feels like it is ‘further down the line’.
‘Knowledge is power when it comes to how people can prepare to retire. Being informed and recognising the psychological impact of acknowledging a problem, both help immensely,’ she says.
‘To help all of this, it’s really important to seek expert support from people you trust. Four in ten of those looking to retire soon have started to talk to their partner about it, and almost a quarter have spoken to their friends.
‘But on top of this it’s vital to get professional help too. There’s lots of bad information out there, and sadly not everything you can access on the internet is going to be credible. My top tip is to seek credible advice from people who are experts in retirement planning.’
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
What can you do to increase your pension?
If you are about to retire, or have retired and are relying on your state pension as your main source of income, there are things you can do to increase what you receive.
For those who can delay their retirement, working for longer will not only build up more contributions in your pension pot but deferment will increase the amount you receive through your state pension.
However, for many this may not be an option due to health or other circumstances. In this instance Carolyn Jones of MaPS suggests you look into additional benefits you may be entitled to, such as pension credit.
‘There are thousands of pensioners who are eligible but do not claim,’ she explains.
‘Some people may think that pension credit is only a couple of pounds a week so not worth it, but it is a gateway to other benefits, such as TV licence discounts. And they are entitled to it so there shouldn’t be any embarrassment about taking it.
Elderly people in the UK are missing out on £1.7 billion worth of pension credit top ups.
Jones also says that many work pensions go unclaimed, and advises people to go back through their employment history to see if there is anything they have missed. The Government’s free pension tracing service is here.
As the cost of living crisis continues to put pressure on spending, Jones expects to see more people taking up part-time work during their retirement or delaying it all together.
However, she warns those who have not yet reached retirement age against dipping into their pension pots as a way to top up their income.
‘People are struggling and they think the answer is their pension – just talk to us, we can help.
‘There may be the temptation to dip in but I would encourage them to pick up the phone as there are things we can talk about before they take the leap.’
People who are under 55 face heavy tax charges if they access their pensions early, and could fall prey to fraudsters since legitimate firms will not help you do this.
Meanwhile, if you are over 55 there are pitfalls like severely limiting how much you can save into your pension in future and still benefit from tax relief top-ups.
Are you elderly and anxious about bills?
Age UK is urging older people to call its free national advice line on 0800 169 65 65,.
Its staff will check you are receiving everything you are entitled to, including pension credit and attendance allowance.
Find out more here about pension credit, or call Age UK which will help you apply.
Age UK adds that energy providers have a duty to offer support if people are struggling with bills or debt, and you can ask about an affordable repayment plan.
Read more here about dealing with soaring energy bills and here for energy saving tips.
TOP SIPPS FOR DIY PENSION INVESTORS
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