A fifth of adults retiring this year plan to rely on the state pension as their primary source of income once they stop working, a new study finds.
For pensioners, the number rises to a quarter. About 20 percent say they are retiring later than planned because they haven’t saved enough to stop working.
Others are turning to the growing trend of “flexible retirement,” with 66 percent of new retirees planning to continue working in some form during their retirement, according to research by financial services firm Abrdn.
Retirement planning: More than a quarter of those retiring this year say they don’t know how to mitigate the impact of inflation on their income
About 27 percent of those who will stop working 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 per week, topped up by additional state pension entitlements such as S2P and Serps, and the new flat rate version is £185.15 per week.
At 3.1 percent, the last annual increase in the statutory pension was well below the current inflation rate of 9 percent, due to the temporary suspension of triple locking.
The government has pledged to reintroduce the triple lock – under which the state pension rises by the highest of inflation, earnings growth, or 2.5 per cent – for next April’s increase.
According to Age UK, the number of pensioners living in poverty surpassed the 2 million mark last year. Since 2013/14, the figure has increased by almost a third from 1.6 million.
Carolyn Jones, Head of Monetary and Pensions Advice, Policy and Strategy at the Money and pension serviceShe’s not surprised by the results of Abrdn’s poll, she tells This is Money.
Research from the MaPS Financial Wellbeing Survey shows that 44 percent of those who have reached statutory retirement age say it is their primary source of income.
Within this number, there are notable differences, as 54 percent of women in the group say it is their primary source of income, compared to just 33 percent of men.
And 64 percent of the lowest wealthy depend on the statutory pension as their main source of income.
MaPS is supported by the Department for Works and Pensions and offers free, impartial advice and support for financial well-being.
Retirees who depend on their state pension should check if they are eligible for a pension credit, which can also open the doors to additional rebates and savings
Paul Titterton, Digital Retirement Advisory Expert at Abrdn, says: “It is worrying enough that one in five people want to rely solely on the state pension to fund their retirement, but this is happening at a time of high inflation and the associated cost-living crisis , which means we’re likely to see a growing old-age poverty gap.
“While state pension is an essential part of retirement planning, it’s important for retirees to also consider other savings and assets, including the funds built up by car registration at work, when deciding whether they can afford retirement.”
To address the unwillingness of many pensioners, Abrdn – formerly the Aberdeen Standard – has launched a campaign encouraging consumers to seek advice on the premise ‘It’s okay not to know’ and offering advice for those who do to wish.
The Pensions and Lifetime Savings Association describes different types of lifestyles and how much it would cost retirees each year to meet that standard of living.
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, those looking for a moderate retirement with more financial security and flexibility will need an extra income of £11,172 a year on top of their full state pension.
What is the statutory pension?
The basic state pension is currently £141.85 per week, or around £7,400 per year. It is augmented by additional state pension entitlements – S2P and Serps – earned during years of service.
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.
Individuals who have left S2P and Serps over the years and will retire after April 2016 get less than the full new state pension.
But they can fill gaps in unpaid and/or underpaid Social Security in earlier years and build up more qualifying years if they have enough time until state retirement age.
Workers had to have 30 years of qualifying Social Security contributions to get the old state pension, but they now have to have 35 years of contributions to get the new flat-rate state pension.
But even if you’ve paid in full for a full 35 years, you may still get less if you contract a few more years.
dr Linda Papadopoulos, a psychologist, author, and broadcaster, says many people put off thinking about their retirement because it always feels like it’s “farther down.”
“Knowledge is power when it comes to how people can prepare for retirement. Being informed and recognizing the psychological implications of acknowledging a problem both help immensely,” she says.
“To help with all of this, it’s really important to seek expert support from people you trust. Four out of ten of those who want to retire soon have started talking to their partner and almost a quarter have talked to their friends.
“But it’s also important to get professional help. There is a lot of bad information out there and unfortunately not everything you can find on the internet is believable. My top tip is to get 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 already retired and depend on your state pension as your main source of income, there are a number of things you can do to increase your pension.
For those who can defer their retirement, not only does working longer build more contributions into your pension pot, but deferral does too increase the amount you receive over your state pension.
However, for many, due to health or other circumstances, this may not be an option. If so, MaPS’s Carolyn Jones suggests that you look into any additional benefits you may be entitled to, like pension assets.
“There are thousands of retirees who are eligible but don’t apply,” she explains.
“Some people might think that a pension credit only costs a few pounds a week and is therefore not worth it, but it’s a gateway to other benefits, such as B. Discounts on television licenses. And they’re entitled to it, so there shouldn’t be any embarrassment in taking it.
Older people in the UK are Missing out on £1.7 billion in pension savings.
Jones also says many employment benefits go unclaimed and advises people to go back over their employment history to see if they’ve missed anything. those of the government free pension search service is here.
As the cost-of-living crisis continues to put pressure on spending, Jones expects more people to take up part-time work or postpone it all together during their retirement.
However, she warns those who have not yet reached retirement age not to reach into their pension pots to supplement their income.
“People are struggling and think the solution is their pensions – just talk to us, we can help.
“There may be a temptation to dive in, but I would encourage them to pick up the phone as there are things we can talk about before they take the plunge.”
Persons under the age of 55 have to reckon with high tax burdens if they draw their pension early. and could fall prey to scammers because legitimate companies won’t help you.
Meanwhile, if you’re over 55, there are pitfalls like severely limits how much you can save for your retirement in the future and still benefit from tax breaks.
Are you older and afraid of bills?
Age UK is encouraging older people to call their free national helpline on 0800 169 65 65.
Staff will check that you’re getting everything you’re entitled to, including pension credit and carer’s allowance.
find out more here to the pension balance, or call Age UK who will help you apply.
Age UK adds that energy providers have a duty to offer support when people are struggling with bills or debt, and you can ask for an affordable payback plan.
TOP SIPPS FOR DIY PENSION INVESTORS
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One in five people retiring this year plan to draw on their state pension
Source link One in five people retiring this year plan to draw on their state pension