With so much good news surrounding the success of auto-enrolment and the record numbers of workers saving for their pensions and it has been easy to forget about the generations of workers who preceded auto-enrolment.
It was therefore sobering to read that the numbers of single pensioners who rely completely on their state pension has increased by 26% to 1.1 million over the last five year; this included a 15 per cent jump in the 12 months to 5 April 2016 (1). This is thought to include many widows who had been relying on their spouse’s pension to top up their incomes (1).
The proportion of single pensioners in the UK who have no source of income other than the State has hit its highest level in over two decades, according to the Department of Work and Pensions (DWP). In addition 330,000 pensioner couples are also completely dependent on the State Pension, income related benefits and disability benefits for their income (2).
The figures compiled and analysed for the DWP by the financial services company Just, showed that the average amount of weekly State income for single pensioners including benefits, was £188 in the most recent tax year. Based on the 4.55 million single pensioners in the UK, the total tax bill came to £850m per week (2).
The flat-rate state pension introduced last year is seen by many as only enough for basic comforts. It would give retirees £159.55 a week or £8,297 a year if they have amassed at least 35 years of full national insurance contributions. However a Freedom of Information request found only 41 per cent of the 153,990 who claimed a state pension for the first time, got the full amount (3).
These DWP figures reflect research released by the Prudential in March, which showed that thousands are expected to enter into retirement this year with an income that is up to £1,400 a year below the Joseph Rowntree Foundation’s minimum income standard of £186.77 a week (2).
“The State will never provide a retirement income that allows for many comforts,” says Stephen Lowe, group communications director at Just. He said that “for those who do have some savings, good guidance about what to do with those savings is vital” .
“Poor decisions can quickly erode savings and despite their best endeavours people will find themselves reliant on whatever the State can provide. (2)”
The real concern about these figures is that rather than increase the financial situation of pensioners the Government are under intense pressure to address the spiralling cost of the state pension (1).
This currently stands at £100bn a year and is growing rapidly as a result of rising life expectancy. One likely outcome of this pressure is that the age one can draw the state pension may be put back to 70 to reduce the cost on the State (4).
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.