The new State Pension is not enough to live on

Earlier this week, the Government outlined its plans for a new flat rate state pension of £144 a week, which equates to £7,488 a year. Of course, less than £7.5k a year is way below a full-time minimum wage and woefully short of a living wage. In fact the Joseph Rowntree Foundation calculates said living wage to be more than double that, at £16,400.

This, of course, leaves most of us looking for an additional source to fund our pension, and with annuity rates scraping the bottom of the barrel, estimates by SIPP company AJ Bell suggest normal, average people would need a pension fund of £270,000 in order to generate the balance. Figures for inside London are higher at £280,000 to give the living wage of £16,672; outside London, the living wage of £14,527 would need a £190,000 pension pot. For those without a State Pension (and under the new rules anyone with less than ten years’ contributions would get nothing), they would need £500,000 just to get by.

Even if you ‘only’ want to end up with minimum wage (£12,070), you would need £130,000 put away. If you have pipe dreams of an income equivalent to the average wage of over £25k a year, you’d need at least £550,000 plus your State Pension.

Billy Mackay of AJ Bell told The Telegraph: "You would need more than £200,000 to fund the basic state pension if it didn't exist, so this is a significant start. But £144 a week is the equivalent of just £3.84 an hour – far below the minimum wage and well below the living wage."

So how realistic is it to be able to save up the required amount of cash?

Using the Hargreaves Lansdowne pensions calculator (which gives almost identical results), in order to get an £270,000 fund value generating an annual pension of £8,931 at age 65, a 35 year old male would need to save £364 (£455 gross) per month into a pension scheme, assuming an annual increase in contributions of 2.5% per year. A 45 year old would need to contribute £838 (£1,048 gross) per month, and a 55 year old can just forget it.

Of course these figures assume the pensioner will take a 25% lump sum from the fund. Without doing so, the monthly contributions drop to £272 (£340 gross) and  £630 (£788 gross) per month respectively. Still quite tough to find when people are struggling to pay for heating in the snow.

Looks like we’re all in the shit together.


  • wow
    What they fail to consider is that most people will have paid off their house, car, credit/loans by the time they retire, and older people tend not to need to spend on trivial luxuries anyway. Surely £7500 can pay heating, electric and food bills for a pensioner who owns their property. Obviously if you've never worked or contributed to a private pension, then that was your own choice.
  • Rob
    ^ wow - the milk of human kindness, there ...
  • PJH
    Well the state pension isn't meant to be your sole source of income in retirement these days, and hasn't been for years; anyone who remotely thinks that it should, seriously needs to rethink their plans for old age.
  • Sebastian S.
    What they also seem to fail to realise is that people who contracted out, and people have done, since 1988, some 25 years later, this is going to be deducted from the 35 years one needs, so in this case, 35-25 = 10, therefore 10/35ths of the new single tier pension is your limit - I think there is a fallback I'm not sure whereby if this happens, your pension will be "checked" against the current system and the current system figures are used - perhaps someone can clarify. If not, someone who has contracted out all these years, as the example above will only get around 1/3 of the £144 in today's terms. Disgraceful, but please clarify.
  • PJH
    The problem with subtracting whole contracted years off the 35 year requirement is that it ignores the part of the NI that was paid and not rebated. i.e. the NI rebates/discount was what went to pay for S2P/SERPS - employees were still accruing credit for the basic state pension. Are they seriously going to penalise those who were contracted out the full £4.11 (£144/35) per contracted year out?
  • IJA
    Everyone is talking about what the state pension is going to be 2017 but what if you are getting £150.00 now is that going to be reduced to £144.00 after working for 47 years?
  • PJH
    If you're getting a pension now, you won't be in the new scheme. If you would get £150 under the old scheme but are due to retire after 2017, then you'd get £150 - they won't reduce it to £144.

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