As the Government sets out to introduce a new single tier state pension, new research from pension provider Aegon UK reveals that only 4% of financial advisers think the state pension will remain in its current form in 30 years’ time, raising questions about the security of what is a financial lifeline for millions in the UK.
Of the 96% of financial advisers that think the state pension will change from its proposed form, two in five (39%) believe it will revert back to means testing; two in five (41%) expect it to become less generous, and move away from the triple lock; and half (49%) believe the government will make further increases to the state pension age beyond those currently planned.
Key findings from the research include:
- Only 1 in 25 advisers believe the state pension will take current form in 30 years
- Cost to buy a state pension: Man at 65 = £280,000; Woman at 63 = £273,000
- Two in five advisers think it will become means-tested
- Two in five expect it to be less generous
- Half expect retirement age to be increased further
The value of the state pension should not be underestimated. For example, based on the new single tier state pension of £151.25 per week, it would cost a man £280,000 to buy it at age 65, and £273,000 for a woman at 63. The state pension is the only form of retirement income for at least 1.2million pensioners, and for the majority it is a major part of their overall retirement income. It is also the key foundation allowing the Government to introduce pension freedoms.
From April 2016, the Government will introduce a new single tier state pension of no less than £151.25 per week for those with full entitlement. No longer will earnings impact state pension income, but 200,000 people set to retire by 2017 are due to miss out on the full amount, because their National Insurance contributions are insufficient to warrant them receiving it.
Duncan Jarrett, Managing Director, Retail at Aegon UK said, “The state pension is a financial lifeline for millions of pensioners in the UK, so it’s concerning to see such a resounding number of financial advisers foresee more uncertainty on the horizon. People need confidence in what to expect to receive from the state, so we can’t afford cliff-edge moves to means testing, or sudden increases to the state pension age.
“We need to get better as an industry at highlighting to individuals how much they are due to receive, so they can then work out how much private pension they need to make up the gap between this and their aspirational income in retirement. If someone were to buy a state pension at retirement it would cost at least £273,000 as a one off payment to secure a weekly income of £151.25. This is significantly more than the £63,815 those approaching retirement have on average in their private pension, highlighting just how fundamental the state pension is to people’s retirement plans. If an individual wanted £303 a week in retirement, they would need an equivalent private pot of £273,000 on top of their state pension.”