Drawing on a State retirement income

Nearly a quarter of the UK population is currently over the State pension age, according to United Nations figures. The same analysis predicts this will rise to almost 30 per cent by 2030.

As it stands the Government has pledged to raise this from 60 for women and 65 for men to 66 for both by April 2020, with an unspecified timetable to raise this to 68 in future.

Highest State pension
The highest State pension available to individuals is just £102.15 per week. Recently the Department for Work and Pensions (DWP) announced a consultation on increasing the State pension to £140 per week, while doing away with the means tested element of the supplementary benefits, with draft legislation on the issue expected later this year.

The cost to the taxpayer of this provision – £4 billion by next year according to the DWP – limits the Government in its ability to raise provision beyond inflation.

Meanwhile, the ageing population will prove increasingly expensive. Yet the split in total UK retirement income between private savings and public pension benefits is approximately 50/50, according to statistics from think tank the Organisation for Economic Co-operation and Development.

For the 12 million healthy UK adults of economically productive age currently making no contributions to a private pension or long term savings product, maintaining an acceptable living standard to the end of their lives is further compounded by how long that figure is likely to become.

Life expectancy
Current Office for National Statistics (ONS) figures report men living for 78 and women 84 years on average, with these predicted to rise to 85 and 89 years old respectively. Club Vita, which provided specialist life expectancy research to pension schemes, claims 80,000 UK citizens will live to 100 by 2033.

The easiest way for many to access a private pension is through their employers. Most large companies offer a workplace scheme. Furthermore, the Government is set to make this provision compulsory for all firms by 2017, with some automatically enrolling staff from 2012.

This will be complemented by a State managed defined contribution (DC) pension scheme called the National Employment Savings Trust (NEST). In DC arrangements workers pay a percentage of their salary into a fund, to which the employer can pay an additional sum.

This is invested in a range of assets – mostly stock markets – until the saver retires, at which point they cash in the accumulated pot and use it to buy an insurance policy called an annuity, guaranteeing them an annual income for the rest of their lives.