Is the New State Pension Enough for my Retirement?
It might be tempting to pin retirement planning as a problem for tomorrow. Perhaps your retirement is both in the future and covered by the safety net of the new State Pension.
However, both of these may hold a unique danger. The first underestimates the power of time; the longer you postpone saving, the more you may have to save. The second implies that the new State Pension is enough to support your desired retirement lifestyle.
If you’re a woman born after the 6th April 1953 or a man born after 6th April 1951, the full New State Pension available to you is £159.55 per week. On the new State Pension alone, your maximum monthly income during retirement would be £638.20, giving you an approximate annual income of £7,658. You may also have to pay tax on your pension.
| Full weekly amount | Full monthly amount (weekly x 4) | Full annual amount (monthly x 12) |
| £159.55 | £638.20 | £7,658 |
It’s important to note that this is the full amount. Whether you receive this much will depend on your national insurance record. The new State Pension “will rise by whichever is the highest figure out of inflation, earnings growth and 2.5%” each year. The calculations included in this article have not factored in inflation.
Can I retire on the new State Pension alone?
This depends on your personal circumstances. Take, for example, homeownership, family commitments and other financial responsibilities. It also greatly depends on the lifestyle you wish to have.
For example, if you do not own your own home by the time you retire, the new State Pension will not cover the average cost of renting in the UK. In June 2017, this was £908 per month.
Excluding Greater London, the national average cost of renting was £757 during the same time. Even when renting in the most affordable region - the North East, at £525, you would be left with under £100 a month for living expenses and all other costs.
In fact, in a document titled “Your State Pension Explained,” the government explains, “For many people, the State Pension is only part of their retirement income.” As such, it is common to supplement your pension with other forms of income, whether that may be savings, investments or rental income.
How much money should I save in addition to the new State Pension?
In association with Joseph Rowntree Foundation, Standard Life’s tool suggests that to fund a minimum acceptable standard of living during retirement, you’ll need £9,700 per year before tax. Under basic living costs alone, a yearly shortfall of £2,042 exists between retiring on the new State Pension alone and how much money you may actually need.
If you retire at 66, (which will be the new State Pension age by 2020), and live until 82, (the average UK life expectancy as of 2015) you will need to cover your basic living costs for approximately 16 years. This means that you will need £155,200 to achieve a minimum acceptable standard of living. The new State Pension alone will provide you with £122,528.
However, you shouldn’t place too much leverage on an estimated time frame. Life expectancy is on the rise, and even if it wasn’t, it’s likely you’ll want to ensure you were fully covered for a long and healthy life.
| Amount needed for 16 years of minimum acceptable standard of living | Full amount received from the new State Pension over 16 years | Total shortfall over 16 years |
| £155,200 | £122,528 | £32,672 |
However, whilst this shortfall does not seem too drastic, the minimum acceptable standard of living covers basic living costs, as opposed to retirement lifestyle.
A minimum acceptable standard of living:
What does the £9,700 include?
- Food
- A budget for birthday presents
- A week’s holiday in the UK
- Alcohol
- Cinema tickets
- Mobile phones
- DVD players
- Internet access
- Public transport
Note: the figure assumes that all mortgage repayments have been made.
However, if you would prefer a more luxurious lifestyle, it’s likely that you will need a lot more. The data in the table below, which was sourced from Standard Life’s retirement tool, offers specific estimations on this.
Note: the cost of each luxury is cumulative (i.e. in addition to those mentioned before it).
| Retirement lifestyle | Annual amount needed to fund retirement lifestyle | Annual amount needed to supplement new state pension | Total amount needed to supplement pension (Annual amount x 16 years) |
| Basic living costs | £9,700 | £2,042 | £32,672 |
| + 2 weeks holiday each year | £12,125 | £4,467 | £71,472 |
| + 4 weeks in the sun each winter | £17,625 | £9,967 | £159,472 |
| + A car and 5 yearly upgrade | £25, 087.50 | £17,429.50 | £278,872 |
| + Health club membership | £25,837 | £18,179 | £290,864 |
| + A concert, play or show once a month | £27, 337.50 | £19,679 | £314,864 |
| + Weekly dinner or drinks with friends | £29,587.50 | £21,929 | £350,864 |
| + Shopping trips for you and your family | £31,462 | £23,804 | £380,864 |
| + Home improvements | £35,212.50 | £27,554.50 | £440,872 |
Please note, however, that these figures are estimations and should merely act as a guide to what you may need. You will need to consider your own personal circumstances when planning your retirement, such as spending habits, medical costs and family commitments. In addition to this, these estimations are based on today’s costs and do not take into account inflation.
As highlighted, it is likely that you will need to supplement your pension with savings or investments to truly achieve the retirement you desire. Likewise, whilst the average life expectancy in the UK is 82, it might be detrimental to limit your savings to an estimated time frame. As a general rule of thumb, you should have as much money as you can for retirement.
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Written by Jenna Kamal
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