The Department for Work and Pensions confirmed a 2.5% rise in the full rate of State Pension in 2021-22 to £179.60 a week. There is also a 2.5% rise for those who retired before April 2016 to £137.60 (topped up to £177.10 a week by Guaranteed Pension Credit).
That means that those receiving the full rate of the post-2016 State Pension will receive £9,339 a year. This is £1,373 a year less than the £10,712 Minimum Income Standard (MIS) published by the Joseph Rowntree Foundation, the anti-poverty charity, based on its research this year of how much income the public considers is the minimum acceptable for a single pensioner.
“These standards are an important sense check about the minimum income people should be aiming to generate in retirement,” said Stephen Lowe, group communications director of Just Group.
“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.”
He said that a healthy 67-year-old would need a pension fund of about £30,000 to generate £1,373 a year guaranteed income for life but the exact amount needed could be less depending on a person’s medical conditions and lifestyle factors such as what medication they are taking or whether they smoke.
Taking pension cash early is ‘the new norm’ according to the Financial Conduct Authority (“FCA”). 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. Nearly nine in 10 pensions valued at less than £30,000 that are accessed each year are fully withdrawn rather than invested to provide a pension income.
Research from Just Group found that fewer than one in five people aged 45+ thought that the State Pension was enough to live on.
“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,” said Stephen Lowe.
“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.”
Just Group’s research found 77% of defined contribution (“DC”) pension savers aged 45-54 would welcome free support in understanding their options4. However, FCA statistics show half (50%) of DC pensions accessed last year were done so without the free, independent and impartial guidance from Pension Wise or advice from a regulated adviser, rising to nearly two thirds (64%) of full withdrawals3.
“The government has committed to making receiving impartial guidance from Pension Wise ‘a norm’. The Pension Wise service is highly rated by users for improving their knowledge of their options and for helping them recognise and avoid scams,” said Stephen Lowe.
“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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