The state pension is often thought of as a basic human right; a trade-off for working for decades and paying National Insurance, giving retirees the chance to live in comfort. However, many people could not only find that the state pension isn't as generous as they were expecting, but there are growing fears that it could become even less so in the years ahead.
New research from Aegon UK shows that just 32% of respondents believe that the state pension will be as generous when they retire, while 33% believe that it will be less so, and 10% think that there'll be no state pension at all when they reach retirement. Just 11% feel it'll be more generous.
This highlights "worrying levels of uncertainty around what is a financial lifeline for millions in the UK", it said in the report, and means that people may want to be focusing on workplace or personal pension provision rather than expecting to wholly rely on the state.
Indeed, even today, relying on the state pension alone probably wouldn't be sufficient – the current flat rate of around £155 per week may not go very far for most – but if this were to be reduced in the future, or scrapped altogether as some fear, retirement could be a true challenge without a suitable financial backup plan.
Confidence is definitely waning as to the future of the state pension, as although the "triple lock" – whereby the state pension is guaranteed to rise every year by the highest of price inflation, earnings growth or 2.5% – is currently set in stone, the Government has recently cast slight doubt on its long-term future.
Perhaps unsurprisingly, the role of the Government may be a factor in consumers' perceived lack of confidence in the future of the state pension, with 70% of respondents admitting that they don't trust the current Government to make fair decisions when it comes to future reforms. Increasing the retirement age is also a concern, with 36% wanting further age increases to be frozen, while 35% think it should be possible to take a reduced amount from age 60.
Kate Smith, head of Pensions at Aegon, said it perhaps wasn't surprising that so few people believe the state pension will be as generous when they come to retire, given the "backdrop of almost continuous reform". "This wasn't helped by the confusion surrounding the introduction of the new flat rate state pension," she said, "with many reaching retirement finding they're not entitled to the full pension of £155.65 per week.
"The stark reality is that, for most people, the state pension alone will not offer them a comfortable retirement. Some may see it as a key societal safety net, and others as a key building block. Whatever your opinion, everyone deserves clarity on their expected entitlement so they can plan, and save to supplement this as necessary."
Quite simply, there's no guarantee of what's going to happen to the state pension in the decades to come, which is why it's so important to have alternative plans in place. This should involve a savings pot at the very least, but why miss out on employer pension contributions and Government tax relief? Saving into a workplace pension should be at the top of the agenda, and with auto-enrolment well underway, there's no reason not to get involved. Happy saving!
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