Are You Relying On The State Pension For Your Retirement? You Must Read This Now!
If you think that the State Pension on its own will be sufficient to maintain the lifestyle you want when you retire, you may be surprised. Maybe you are not aware of what this benefit will give you. If so, you should check that you have the current rates of the State Pension and whether this will be enough for you to live on. You will likely need additional income on top of the State Pension when you retire, but it does provide you with a good starting point to calculate your needs.
Significant concerns exist about the number of people who are failing to make financial preparations for their retirement. In many cases, people could see themselves falling into poverty when they stop working if they do not arrange sufficient funding for when they retire.
To get an idea of what the State Pension is, what you are likely to receive, and other ways to fund your retirement, read on.
The UK State Pension
The State Pension came about as a result of the National Insurance Act passed in 1948. It introduced a contributory pension scheme for men over 65 and women over 60. This contributory system remains today, although now the age at which both men and women receive the pension equals 65. You pay into the State Pension scheme through National Insurance contributions taken from your salary. You can build up your contributions throughout your working life to a maximum of 35 years, the point at which you can receive the full State pension.
Since 1948, there have been significant economic and social changes in society, such as inflation, which have altered the weekly amount people receive from the State Pension. However, in 2010, the Government introduced the ‘triple lock,’ which guaranteed that the State Pension would rise by either the rate of inflation, the average earnings growth, or 2.5%.
Why Has the State Pension Changed?
When the State Pension was introduced. It was designed to support people through their old age. However, today people are living a lot longer than they did in 1948. Back then, the amount of pension people received from the state was likely to cover everything they needed to live. However, today, it is improbable to be sufficient to meet your living requirements.
The State Pension is also under pressure from the number of people who are now drawing it. There is a more significant proportion of people drawing their State Pension today than there was in the 1950s. This situation means that there is increased pressure on the State Pension pot. On a positive note, advances in digital technology, online communications, and improved health, in general, mean that people are living longer and working longer.
Finally, when the State Pension was introduced, it was designed to provide people with their basic living necessities. However, today people have greater aspirations than in 1948. Therefore, the financial provisions needed to sustain a modern lifestyle will generally outweigh what the State Pension provides.
Will You Receive the Maximum State Pension?
You will make a significant amount of National Insurance contributions to provide your State Pension when you retire throughout your working life. However, not everyone receives the same amount. Currently, the full State Pension is £179.60 per week, and you need to have made National Insurance contributions for thirty-five years to be entitled to this full amount.
The reason you may not receive the full State Pension is that you may have had periods of unemployment, worked overseas, or had an illness that prevented you from working. Any of these could have led to gaps in your National Insurance contributions, meaning you receive a lesser weekly pension. If you are self-employed, you pay National Insurance at the end of each tax year, which often gets overlooked.
You can check your State Pension forecast on the Government’s pension website. That will show you how much National Insurance contributions you have made and what your pension is likely to be. If you are below the full amount of contributions, you can top them up voluntarily to get yourself back on track to the full State Pension.
Other Sources of Retirement Income
As we’ve already alluded to, the State Pension alone is unlikely to provide you with sufficient income to sustain the lifestyle you want when you retire. Here are a few income options that you should consider to give you a reasonable income during retirement:
You can choose to make regular contributions to a private pension, and there are plenty of companies that offer this service. Your pension provider will invest your money for you, and this should grow to provide you with a healthy income for your retirement years. A private pension is likely to give a more substantial income than the State Pension. The actual amount of income you receive from a private pension will depend on how much you invest into it, its performance, and how many years your money is invested.
Employers provide workplace pensions to help employees save for their retirement. If you are employed, at least twenty-two, and earn a minimum of £10,000 per year, you should be automatically enrolled in a workplace pension.
You contribute 5% of your gross salary to your workplace pension. An element of these contributions is tax-exempt, which means that money you would not typically have had is invested in your future. Also, your employer makes contributions amounting to 3% of your gross salary. These contributions, like the tax-free element, are money that you would not have otherwise.
The tax exemption and your employer’s contributions are a significant boost to the contributions you make yourself. Although you can choose to opt-out of a workplace pension, its benefits are considerable. Therefore, you should only consider opting out in the most extreme circumstances.
Everyone dreams of the day they stop working, put their feet up, and enjoy their retirement. However, there are plenty of benefits from continuing to work, either full-time or part-time, beyond your retirement age. As well as continuing to have income and contribute to your pension, there are also benefits for your social life and well-being. Also, delaying your retirement can place you on a higher State Pension rate.
Other Income Sources
You may have other sources of income to supplement your retirement funds, such as other investments, windfalls, or property rent. You should consider all of these income sources when planning your retirement lifestyle. An FCA-regulated financial advisor can help you determine your financial requirements for the retirement you desire.
The State Pension is a good foundation for your retirement, but you should seriously consider whether it is sufficient to sustain the retirement lifestyle you want. Regardless of whether you have amassed enough contributions to receive the full amount of State Pension, having other income provisions in place is advisable.
Hopefully, this article will inspire you to get your retirement income organised. Knowing you have sufficient income in place will allow you to look forward to your retirement, and enjoy it when it comes. After all, you’ve earned it!
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