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.