State PensionDec 14 2020

State pension boost falls short by more than £1k

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State pension boost falls short by more than £1k

Pensioners who are set to benefit from a 2.5 per cent state pension boost will still have to plug a more than £1,000 gap to achieve an acceptable retirement income, Just has warned.

According to the provider, retirees will need an additional £1,373 a year income on top of the £9,339 a year new state pension to achieve an acceptable income in later life.

The Department for Work and Pensions confirmed a 2.5 per cent rise in the full rate of state pension from April 2021 to £179.60 a week. 

There is also a 2.5 per cent rise for those who retired before April 2016 to £137.60 (topped up to £177.10 a week by guaranteed pension credit). 

According to Just, this means that those receiving the full rate of the post-2016 state pension will receive more than £1,000 less than the £10,712 minimum income standard published by the Joseph Rowntree Foundation, based on its research this year of how much income the public considers is the minimum acceptable for a single pensioner.

Stephen Lowe, communications director of Just Group, said these standards are an important indication as to what income people should aim to generate in retirement.

Mr Lowe said: “They show the importance of private sources of pension income, however modest, to provide a top up to achieve an acceptable standard of living. 

“People may not realise that even relatively small pensions can make the difference between struggling on too little money and having enough to cope in retirement.”

Recent data from the Financial Conduct Authority, found three quarters of those accessing pension cash from a defined contribution pension before age 65 do so at the age of 55, the earliest opportunity. 

In addition, nearly nine in 10 pensions valued at less than £30,000 that are accessed each year are fully withdrawn rather than invested to provide a pension income.

Despite this, research from Just found that people do not want to solely rely on the state pension.

Mr Lowe said: “On the one hand people know they don’t want to be reliant solely on state pension but on the other hand huge numbers are emptying pensions as soon as they can.

“That’s not a problem if people have made informed decisions and weighed up the consequences but could be a disaster if they are assuming small pensions aren’t worth bothering with and don’t realise they are going to face an income gap when they start claiming state pension.”

But savers approaching pension age are still confused about what options are available to them.

According to research from Just last week (December 9), out of 1,000 adults aged 45-54, 59 per cent were confused about what to do at retirement.

This rose to 65 per cent for women, who were half as likely as men to know of the government’s free guidance service Pension Wise (12 per cent versus 20 per cent).

Mr Lowe said there was “overwhelming evidence” that stronger support was needed for the majority of those facing important pension decisions.

He said: “People are reaching age 55 in record numbers with many of them aware they can start dipping into their pension money even if they plan to carry on working. 

“It’s vital they receive the support to make pension choices today that their future selves will not regret – and it’s up to the FCA to make sure the majority, not the current minority, benefit from Pension Wise.”

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