Official figures suggest the average retired couple’s spending power is £21,770 a year1, while the full State Pension for a retired couple brings in £16,593, effectively covering just over three-quarters of annual spending or enough to cover their spending up until Friday 6th October: ‘State Pension shortfall day’.
From today onwards, households will need to meet spending from their own sources. That leaves a financial gap of £5,177 a year compared to the budget of a normal retired couple, nearly three months of expenditure, that needs to come from private pensions, savings and investments.
“The State Pension provides a significant part of income for most pensioner households but still only covers about three in every four pounds that the average couple has available to spend over the course of a year,” said Stephen Lowe, group communications director at specialist financial services firm Just.
“For a couple receiving the full State Pension – and many will not – that leaves around £5,000 of income to be generated, according to our analysis. This further highlights the importance of people building up workplace and private pension savings to balance the household budget, and of having savings and investments to fall back on.”
Just is concerned that the rising numbers of pension savers accessing pension benefits early may be unaware of the long term impact this wil have on generating income in later life.
“Pension saving requires resilience and patience, paying in over many years and leaving the money invested, to grow until it is needed,” he said. “Of those accessing pension benefits seven in 10 are aged under 65 and, of those around 60% take a full cash withdrawal2.
“That’s fine if they have other sources of capital or income, but many people struggle to save enough into a pension. Taking it out of the pension years earlier than necessary could well harm its future income potential.”
Stephen Lowe said the analysis highlights the need to start planning for retirement well ahead of pensionable age and to take advice, such as from the government’s free and impartial guidance service Pension Wise, when considering how best to use pensions assets in later life.
“We hope that highlighting ‘State Pension shortfall day’ will help people better understand what they can expect from the government and what they are expected to be responsible for themselves.”
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