Everyone who reaches state retirement age on or after 6th April is eligible for the new ‘flat-rate’ state pension up to £155.65 per week. For those who retired before 6th April, the basic state pension is only £119.30 per week, but they may also qualify for additional benefits according to their situation and contribution records.
While the new flat rate pension sounds fine, there are losers as well as winners. Most, if not all, financial advisers warn people that they shouldn’t rely solely on the state pension to fund their retirement.
The new state pension comes to about £8,000 a year. The Joseph Rowntree Foundation says a single person below pension age needs £17,100 to live relatively comfortably and be a participating member of society.
This minimum income figure has been arrived at by asking the general public, in an opinion poll, this simple question: “How much do you think is a reasonable income to live on in retirement to achieve a socially acceptable living standard?”
The same study shows a pensioner couple needs around £18,200 a year to meet their needs. So under the new state pension scheme, a couple without private savings or a private pension would face financial problems.
Pensions Minister, Baroness Ros Altmann, says: “The pensions landscape has changed considerably over the last year or so, and it is vital that people understand what the changes mean for them. It is important that people of all ages start planning for the future – not just those nearing retirement”.
The research also shows that 71% of the general public see pensions as complicated whilst nearly three in ten of those questioned admitted they did not know how much of a pension they will qualify for. Many didn’t even know that they can obtain this information online by simply going to the government’s website: www.gov.uk/new-state-pension/how-its-calculated.
Surprisingly, almost two out of five of those surveyed admitted they didn’t feel they had enough knowledge to make decisions about saving for their retirement, and nearly 10% said that they wouldn’t put their money into a pension scheme as they didn’t trust them.
Furthermore, the research found that over half of the people questioned didn’t understand the new state pension.
The Pensions Advisory Service (TPAS) says that the government and the pensions and savings industry need to build consumer confidence and educate the public so that people can make informed decisions. It went on to add that making pensions guidance compulsory and offering it sooner may be required, though how that could be achieved is unclear.
Richard Graham, MP and Chair of the All Party Parliamentary Pensions Group, says: “The pensions landscape has seen a lot of change. This research shows the impact these developments, including pension freedoms, are having on consumer behaviour”.
“It’s clear that government must work closely with industry to ensure consumers get the advantages offered and avoid the pitfalls. Long-term saving matters.”