There’s good news for anyone who receives the UK State Pension, or who is due to qualify soon. From April 2024, the full new State Pension will increase from £203.85 per week to £221.20 a week.
That means someone receiving the full State Pension will get an annual income of about £11,500. Others will receive less, for example people who reached State Pension age before 6 April 2016 or who didn’t make 35 years of National Insurance Contributions (NICs) while of working age.
But even those receiving the full State Pension will have an income below a minimum level required by retirees, according to the Pension Lifetime and Savings Association (PLSA). It says that to maintain a minimum living standard in retirement, a single person would need an annual income of £12,800 (£20,000 for a couple). This assumes that you have no mortgage or rent to pay.
The PLSA’s moderate living standard in retirement is £23,300 for single people (£34,000 for a couple) and its comfortable living standard is £37,300 for single people (£55,000 for a couple).
If you are worried that the State Pension won’t be enough to live on, all is not lost. From additional state benefits to maximising your savings, there are ways to achieve a more comfortable lifestyle in retirement…
- Government support
Do you know if you are eligible for either national or local government financial support, such as Pension Credit, which supplements the State Pension for millions of UK pensioners? Means-tested benefits could add thousands of pounds to your income.
Read the Citizens Advice guide ‘Check what benefits you can get’ for more information on what benefits are available, and how to check your eligibility.
- Personal or workplace pension savings
If you’ve saved into a workplace or personal pension over the years, you’ll have access to a potentially valuable source of additional retirement income. But if you haven’t yet made a decision about what to do with your pension savings, are you fully informed about your options?
If you are a member of a defined benefits scheme (also known as ‘final salary’ or ’average salary’ pensions) you will typically be given an income for life, with limited choice. But don’t forget that these schemes often pay an income at a level higher than you would typically be able to get anywhere else with other retirement income options.
If you have saved into a ‘defined contribution’ scheme (also known as a ‘money purchase’ pension) you will have choice when it comes to turning your savings into income, which you can do from age 55 (changing to age 57 in 2026).
One option is to buy an annuity. This is a way to turn your pension savings into a guaranteed income for life or a fixed term. Your savings are no longer invested so you won’t have to worry about them losing value, although you won’t see them grow if the stock market performs well. But instead, you’ll have a known and stable income to reply on. To see how much income you could achieve, use an online annuity calculator or talk to an annuity broker.
If you don’t mind some investment risk in retirement, flexi-access drawdown may be of interest. With this option, your pension savings remain invested, so you may benefit from investment growth, but you could lose money if your funds perform badly. The upside is more flexibility than an annuity – you can take withdrawals whenever you want.
You don’t have to make an ‘either or’ decision as you can blend these and other options into your unique retirement income plan. Carefully weighing up the pros and cons of your options – including getting advice on tax issues – could help you achieve your goals.
A good starting point is the government-backed Pension Wise service, which offers free information and guidance for anyone aged 50 or over with money in a defined contribution scheme.
- Savings/investments
Many people will have some money in savings or investments outside of pension schemes as they approach retirement. But is there any way to make this money go further as a retirement income source?
An obvious way is to shop around for the best interest rates. Keep track of what’s available on money comparison websites and consumer champions such as MoneySavingExpert. Whatever deal you find however, read the small print carefully to ensure it makes sense to move your money from one place to another.
You may also be able to minimise the tax you pay on the interest you earn. The first £1,000 of interest each year is tax-free for basic-rate payers, and many people will find they get much less than this from their savings. But if you have significant savings, using the tax-free allowances of ISAs can be a way to keep the tax you pay in interest to a minimum.
- Downsizing
If you can stand the thought of moving home, you could free up thousands of pounds to help you lead a more comfortable retirement. Downsizing means moving to a home with a lower value than your own, with the difference between the two values as cash for you to enjoy.
Downsizing typically means moving to a smaller home, but that’s not always the case. You may be able to move to a home of a similar size, but still release some cash by moving to a less expensive area.
Moving to a different home can also knock pounds off your monthly outgoings. For example, you may be able to reduce your council tax bill and energy bills, or cut down on the cost of maintaining your home by moving to a newer property or one in better condition. Just make sure that costs such as stamp duty, moving fees, and estate agent and solicitor fees don’t cancel out the financial benefits of moving.
- Equity release
If you have substantial equity in your home but don’t wish to sell up and move, there are alternatives. One is equity release, which lets you borrow money without having to make regular repayments. Instead, your loan and the interest are typically repaid through the sale of your home when you pass away or go into long-term care.
It’s an expensive form of borrowing and has some drawbacks, such as reducing the inheritance you’ll leave. But that being said, thousands of people a year turn to equity release for extra cash – either as a lump sum or in multiple payments over time. A good starting point if this is of interest is to get an estimate of how much equity you could release before taking professional specialist advice.
- Think outside the box
Put your thinking cap on and you may be able to come up with other ways to boost your income in retirement. What about taking in a tenant or lodger if you have the space? Or maybe taking a part-time job: even a few hours a week can make a huge difference to your living standards in retirement.
Other options may include selling some of the possessions you’ve collected over the years that are now gathering dust. Or looking for ways to save money – everything from grocery shopping at a different shop, cutting back on drinking or smoking, to making the most of your free bus pass instead of driving everywhere.
IMPORTANT: This article is for information only. It does not constitute financial advice. Please consider professional advice or guidance before making important decisions about your retirement income.
