Public sentiment is gloomy regarding the future prospects of the State pension.
Ask yourself these two questions:
1.Do you believe that the State pension will be around in 30 years’ time
2. Do you think that the State pension will keep pace with prices over the next ten years?
If you said ‘no’ to both, then your view places you in the minority, although a sizeable one. Polling research undertaken for the Institute for Fiscal Studies (IFS) last year revealed that a third of working-age people answered ‘no’ to the first question. Pessimism rose with age and women were consistently gloomier than men: in the age range 45–54, about 42% of women said ‘no’ compared with 31% of men. The State pension has existed since January 1909.
The perceived failure of pensions to keep pace with price inflation through to 2034 attracted 38% support, even though the opposite has been the case since 1975. Just 11% thought the pension would outpace price inflation, when that is near the guaranteed effect of the infamous triple lock, which has been in place since 2010.
The poll results may reflect a poor understanding of the State pension, as the IFS notes. This is forgivable, as the State pension has undergone several changes in recent years. For example, there has been the introduction of the new State pension regime in 2016 and ongoing rises in State pension age. Nevertheless, the State pension remains an important foundation for retirement planning. It accounts for more than £7 in each £10 of income for the poorest fifth of retired households and is close to a quarter of all income for the richest fifth, according to the IFS.
The UK’s State pension system is much less generous than many of its European counterparts, but that means it is also more readily affordable in terms of Government expenditure. The public’s pessimism is overdone because the subsistence level at which the State pension is pitched makes its survival more likely. However, while you should not ignore the State pension in your long-term planning, neither should you rely on it alone for a comfortable retirement.
To discuss your financial planning, contact our Sheffield based Financial Advisers on 01142 664 432 or info@smh.group
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