The pensioners among you will probably be delighted by yesterday's Autumn Statement (unless you were hoping to invest in buy-to-let, but that's another story), with Chancellor George Osborne proudly announcing that pensioner benefits will be maintained. But is it all it's cracked up to be?
Well, it's certainly good news if you rely on your state pension as your main source of retirement income. Thanks to the triple lock system, the basic level of state pension will rise by £3.35 per week from 1 April next year – the largest real-terms increase in 15 years, according to the Government – resulting in a weekly basic pension of £119.30. Those who are yet to retire will also be pleased to know that the new flat rate state pension, which also launches in April, will be set at £155.35, giving a bit more certainty over future standards of living.
Osborne said that, by taking all of the increases in basic state pension since the Conservatives formed a Government in 2010 into account, pensioners are now £1,125 better off per year, but that's where the benefits arguably end – and they may not be all that great anyway. The fact is that many people rely on a private pension as well as the state pension in order to achieve a comfortable level of income in retirement, and this is where people's finances can falter, as our own analysis shows that private pension provision has suffered dramatically in recent years.
Richard Eagling, editor of Investment Life & Pensions Moneyfacts, says that while a rise in the basic state pension is to be welcomed, "this has to be balanced by the difficulties facing individuals attempting to fund a comfortable retirement through their own private provision".
In fact, our analysis shows that the average annual retirement income for a male aged 65 has actually fallen by 24% since 2010: if they'd paid £100 per month into a typical pension fund for the last 25 years, they'd have built up a pot of £65,140 if they retired now, but if they'd retired in May 2010, they'd have amassed a pot of £70,089. When the fall in annuity rates is also factored in, this equates to an average annual annuity income of £3,263 today compared with the £4,345 they could have achieved in May 2010, a reduction of £1,082 per year.
So, this means that Osborne's increase of £1,125 is actually reduced to a rise in income of just £43 per year for many retirees, and when the cost of living is factored in, the improvement is all but meaningless. "This raises the question of whether enough is being done to address the challenges and difficulties facing those individuals acting responsibly and trying to make their own pension provision," concluded Richard. "Raising the basic state pension is only half of the battle."
Even though the rise in state pension will be welcomed by many, for those approaching retirement, there are still things you need to do if you want to secure the best income possible. Aside from saving more into your private or workplace pension, one of the best things do to is to shop around for annuity rates.
Retirement incomes may have fallen in recent years but an annuity is still the only way to derive a guaranteed income from your pension pot, and if you shop around, you stand a better chance of getting a decent rate. Combine that with the boost in state pension and the improvement could be worth it, ideally leaving you with a retirement income that ensures you're as comfortable as possible.
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