Nearly three in four (73%) people think the state pension alone would enable them to live comfortably in retirement, according to The Pensions Advisory Service (TPAS) latest ‘Women and Pensions’ survey.
People who reach state retirement age on or after 6 April are eligible for the new ‘flat-rate’ state pension of up to £155.65 per week. For those who retired prior to 6 April, the basic state pension is £119.30 per week and they may also benefit from the additional state pension.
While the new flat rate pension sounds good on paper, there are many losers as well as winners. And experts, including Moneywise columnist Jeff Prestridge, have warned that people shouldn’t rely on the new state pension to fund their retirement.
At just over £8,000 a year, the new state pension is far short of the £17,100 that the Joseph Rowntree Foundation says a single person of working age needs to fully participate in society. This minimum income standard is based on what members of the public think people need to earn before tax to achieve a socially acceptable living standard.
The same study shows a pensioner couple needs £18,212 a year to meet the minimum income standard. So under the new state pension system, a couple would need private savings or pension income to achieve this level.
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Pensions Minister, Baroness Ros Altmann, says: “The pensions landscape has changed rapidly over the last year and it is important that people understand what the changes mean for them. It is important that people of all ages start planning for the future – not just those nearing retirement.”
Most see pensions as complicated
The research also reveals that seven out of ten (71%) of respondents see pensions as complicated. Three in ten admitted they did not know how much state pension they will obtain, and the same number didn’t know how to acquire an estimate for this.
Further still, two out of five (43%) of those surveyed admitted they didn’t feel confident in making decisions about saving for their retirement. And fewer than one in ten (4.5%) respondents described pensions as trustworthy products.
This backs up Moneywise’s research, which found that over half of people (55%) don’t understand the new state pension.
TPAS says the government and the industry need to build consumer understanding in pensions, so people are able to be confident in making informed decisions. It adds that making pensions guidance compulsory and offering it sooner may be required.
Richard Graham MP and Chair of the All Party Parliamentary Pensions Group, says: “The pensions landscape has seen a lot of change. This research shows the impact these developments, including pension freedoms, are having on consumer behaviour.
“It’s clear that government must work closely with industry to ensure consumers get the advantages offered and avoid the pitfalls. Long term saving matters.”