Official figures quietly released this week show fewer than half the UK’s pensioners get the full state pension, prompting renewed fears over widespread old age poverty.
The Department for Work and Pensions (DWP) data revealed that of the 1.1 million people who receive the new state pension, only 44 per cent or just under 500,000 pensioners receive the full amount of £168.60 a week or £8767.20 a year.
A similar number receive at least three-quarters, but aren’t eligible for the full amount.
Under the old system, around 65 per cent of state pension recipients received the full, lower amount, potentially topped up with other benefits.
UK workers usually need at least ten qualifying years on their national insurance record to get any state pension and 35 years to get the full new state pension. You’ll get a proportion of the new state pension if you have between 10 and 35 qualifying years, but no extra benefit if you have more than that.
A “qualifying year” is a tax year during which you have paid, have been treated as having paid or have been credited with enough national insurance contributions (NICs).
“The pension ‘freedom and choice’ reforms were backed up by the promise that the new, higher state pension would be enough to provide a basic level of support if people did use up all their private pensions early,” warns Stephen Lowe, group communications director at Just Group.
“Putting aside the thorny question whether the state pension alone can provide an adequate standard of living, the truth is that most people retiring since the reforms in 2016 do not even receive the full amount of state pension.
“It raises concerns that the level of the ‘safety net’ income provided by the state pension may be lower than people think,” says Lowe.
“We would urge everyone approaching retirement to get a state pension forecast and to take advantage of the free, independent and impartial Pension Wise guidance on offer to ensure they understand their likely retirement income before they start accessing pension money early.”
Citing pre-election purdah, the DWP refused to comment on speculation that current state pension eligibility rules were fundamentally unfit for purpose given so few people receive the full amount.
However, a spokesperson was quick to state that no one receives less than they would have done under the old system. He added that people usually receive less than the full rate because they were previously in an occupational pension scheme so will be receiving income in addition to the State Pension.
But the idea of financially comfortable retirees topping up a healthy private retirement income with the state benefit isn’t accurate either. Just Group’s research shows that the over-65s rely heavily on the state pension for their income, with £6 in every £10 coming from the state.
But even these numbers cover those few with particularly generous payouts. Those from the lowest income groups rely on the state for 90 per cent or more of their retirement income.
More than a fifth of the UK’s over-50s have no private pension savings at all, according to new research by SunLife. Those that do have an average pension pot of just under £147,000. It sounds like a lot, but it would only provide an income of around £7,500 a year on top of their state benefits.
Even in the apparently unlikely event that you receive the full state pension, it only brings the typical total for someone approaching retirement to just under £16,270. According to the Pensions and Lifetime Savings Association, we need £20,200 a year for a “moderately comfortable retirement” covering basic expenditure like food, energy and transport as well as some luxuries like one European holiday a year.
And while many younger workers believe their enrolment in the workplace pension will fill the gap by the time they come to retire, the truth is that those who only make the minimum contributions will struggle to get by, let alone enjoy the post-work life they anticipate.
Women hit hardest
We know that women are far more likely to face old age poverty than men. Two-thirds of women are reliant on the state pension for their income in old age compared with less than half of men.
The latest Women and Pensions Report from Scottish Widows, a prominent study into savings habits and attitudes, shows that 57 per cent of women, compared with 61 per cent of men, are saving enough for retirement, including projected state pension benefits.
But while the numbers show women are saving almost 5 per cent more than they were just before the financial crisis, their pension pots are still £78,000 lighter than men’s on average – which still isn’t enough to afford real financial security in old age.
Jackie Leiper, distribution director at Scottish Widows, said: “If pension policy stands still, women’s retirement savings – private and state funded – will continue to lag behind men’s.
“Although women’s pensions are hit harder by taking time out of the workplace with caring responsibilities and changing jobs more often, addressing this gap is only part of the lifetime savings jigsaw puzzle.”
More than a third of low-income women have opted out of their workplace pension because of other financial commitments.
“We have long championed the need to rethink pension policy and are calling for a series of reforms to allow a more tailored approach to saving,” says Leiper.
“From increased default savings levels to managed access to pension savings, we can help ease the financial stresses that disproportionately impact women.”
More information about the new state pension, including eligibility, the calculations involved and how to claim is available here.
And you can find out what your state pension status and how much you’re projected to receive through the Check your State Pension service.