One in seven to retire without pension
One in seven people retiring this year will have no retirement savings making them either totally or heavily reliant on the state pension, according to research from Prudential.
However, while The Pensions Advisory Service recently claimed that three out of four people think the state pension is enough to live on, the £155.65 a week headline rate of the new state pension is £27.33 less than the minimum income required by a single pensioner, according to the Joseph Rowntree Foundation.
Vince Smith-Hughes, retirement expert at Prudential says: “We are in the midst of some once-in-a-generation changes to pension rules - change that the state pension has not been immune to.
“Most of this year's retirees will be eligible for the state pension under one of two very different arrangements depending on their retirement date. It is very important that they understand what this means for their total income after they give up work."
He adds: "Even those who receive the full new flat-rate state pension will find that it alone doesn't provide the level of income required to sustain a comfortable retirement.”
- See our Guide to the new state pension.
Even for those retirees who do have savings in private pensions, the Prudential research found that they would still look to the state pension to provide a sizeable contribution to their retirement finances.
On average, retirees in 2016 will see their state pension account for 35% of their overall income in retirement. Women were more likely to rely on the state pension, with it accounting for 41% of their income, compared to 31% for men.
Perhaps unsurprisingly women were also three times as likely to have no pension savings at 22%, compared to 7% of men.
Mr Smith-Hughes adds: “Given the significant contribution the state pension makes to most retirees' incomes it is important to make sure people do everything they can to make sure they qualify for the full amount - for example by making voluntary National Insurance contributions to cover any career breaks. ”
For younger people he says the research should also provide a good incentive to prioritise pension saving: "The clear lesson from our figures for anyone saving for retirement is that someone expecting to live in any degree of comfort needs to have made some sort of pension provision of their own.
“There are very few better alternatives than saving as much as possible as early as possible in our working lives and the majority of people will benefit from professional financial advice when planning for retirement."
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.