When building financial plans for our clients, we look at future income sources, which may be received with the State Pension forming one of these.
Frequently, I hear statements such as “it won’t be around when I get there” or “it is not worth considering”.
The current level of the full State Pension for 2018/19 is £164.35 per week or £8,546 per annum provided the required number of years National Insurance has been paid.
To put this into context somebody retiring today and looking to buy an annuity from a personal pension may need a fund of £170,920 to achieve this level of income, assuming an annuity rate of 5.00% (this rate is for illustrative purposes only as the actual rate available will depend on many factors such as current annuity rates, age, health and options chosen).
This is a significant sum and for a couple this could mean pensions funds of around £341,840 may be needed to replicate two full State Pensions.
If two people are both claiming the full State Pension then combined this income could form the foundation of a retirement lifestyle and pay for essential items such as food, heat etc with personal/employer pensions providing the money for leisure, holidays etc. The value of the State Pension should not be underestimated.
An option to consider is topping up the State Pension if not enough years have been paid. Creating a Government Gateway account gives the ability to see your National Insurance (NI) record with the potential option to fill in gaps in your NI history. In my experience, this can sometimes be a valuable way to increase pension benefits.
Whether the State Pension continues in the future is, of course, anyone’s guess, however my personal view is that such an important part of retirement provision in the UK is unlikely to be removed, although the amount we pay in the form of National Insurance Contributions and the date we become eligible to receive it may well change.