Can I rely on the state pension for retirement?

By September 17, 2020 No Comments

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.

It is estimated that as many as 15m people (i.e. 1 in every 3 retirees) in the UK have no pension savings at all. Those over the age of 50 are especially at risk of pension poverty, since there is less time to build up a viable strong retirement fund (although it is certainly not too late). Many people seem to believe that the government will look after them when they stop working, much like the National Health Service (NHS) takes care of us when we are sick. Unfortunately, whilst there is some state support available for those entering retirement, this is unlikely to meet the expenditure needs of most households.

Below, our financial advisers here at Elmfield Financial Planning offer this short guide on the state pension to people living in Padiham, Burnley, Lancashire and beyond. The aim is to show that whilst the state pension will typically form a crucial pillar of a retirement plan, most people will also need to build additional savings. We hope you find this content useful. If you’d like to speak to an independent financial adviser then you can reach us via:

T: 01282 772938



What the state pension provides

For some time now the state pension has increased year-on-year to match the rising costs of living (i.e. the “Triple Lock”). In 2019-20, for instance, the full new state pension provided £168.60 per week (£8,767.20 per year) whilst in 2020-21 it now provides £175.20 per week – i.e. £9,110.20 each year. To receive this amount you need at least 35 qualifying years’ of national insurance contributions (NICs), and a minimum of 10 years to receive anything at all.

The question at this stage, of course, is whether or not this is enough to support your lifestyle in retirement. This largely depends on your financial goals and the kind of lifestyle you want to achieve. A good starting point is to assume that you will need at least 2/3rds of your annual salary (pre-retirement). So, if you earn £30,000 per year in the year before you fully retire then you may need £20,000 to live comfortably.

This formula only works up to a point, however. For instance, a lower earner on £20,000 per year may, theoretically, only need £13,000 per year. Yet research suggests that, in 2020-21, most households will require at least £17,000 coming in annually to meet their basic needs. Of course, it might be possible to cover this with two full new state pensions – i.e. you and your spouse or partner. Yet it’s important to consider what may happen to your retirement income if one of you died prematurely in retirement.

Remember, even if you can inherit some of your deceased spouse’s/partner’s state pension, this is unlikely to stretch to what it was before. As a result, most people will need to consider additional options to build their retirement fund.


Options for building a retirement fund

The state pension can be a powerful way to boost your retirement income. Yet its future is not guaranteed. As we write this, the “triple lock” is currently under review by the government as it seeks to address the ballooning public debt in 2020. As such, our financial advisers recommend that people in Padiham, Burnley, Lancashire and surrounding areas, think as early as possible about exploring as many avenues as possible for securing their desired future retirement. Some ideas include:

  • Leveraging your workplace pension. If you are employed then the UK’s auto-enrolment system obliged you to be put onto a workplace pension scheme. In 2020-21, you are obliged to contribute at least 5% and your employer 3%. Here, it might be wise to look at your monthly expenditure and consider whether your contributions can be increased. If you are in a position to ask for a raise, moreover, then it can also be financially astute to ask for them to increase their contributions to your workplace pension.
  • Building a private pension. Some people (e.g. the self-employed) may not have access to a workplace pension, or may benefit from lower costs or better performance by setting up a private pension. Here, there are many options open to you such as self-invested personal pensions (SIPPs) or, for company directors, perhaps a Small Self-Administered Pension (SSAS) could be a good way forward. Speak to a financial adviser if you are thinking about your options here.
  • Optimising taxes. Regardless of which kind of pension(s) you decide to use to grow your retirement fund, it’s a good idea to find ways to mitigate unnecessary taxes and costs which may eat into your investment returns. Make sure you also make the best use of the pension tax relief available to you. For higher rate taxpayers, for instance, it only “costs” you 60p to put £1 into your pension due to the 40% relief available under the current system. 


Conclusion & invitation

If you are interested in starting a conversation about your own situation then we’d love to hear from you. Get in touch to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire. 

Reach us via: 

T: 01282 772938