Can we rely on the state pension? The onus is increasingly on the individual, and especially the young, to save ‘enough’ for retirement

Money Calculator Planning
Published: 18 Jan 2022 Updated: 19 Jan 2022

Will the state pension be around for today’s young workers in its current form? Probably but the chances are it will be less generous and paid later in life.

The International Centre for Longevity today delivered a report which argues persuasively that demographic trends and fiscal pressures mean that the current schedule for increasing the state pension age (SPA) is unsustainable.

The crippling cost to the Treasury, which has nearly tripled since 2000 thanks to both an aging population and the ‘triple lock’ introduced in 2010, cannot increase at its current rate according to the ILC. To remedy the situation, the Government’s timetable must be accelerated by 15 years so that the state pension age rises to 68 by 2031 and 70 by 2040. A statutory review into the SPA is underway and due to report in May next year.

‘While it is unlikely that a weakened Tory Government will want to inflict such grim news on some of its core voters, reports like this support the suspicion that the state pension in current form cannot be taken for granted,’ says Adrian Lowery, personal finance expert at investing platform Bestinvest.

'Sooner probably rather than later, a Government will bow to the inevitable and push the SPA back further and the triple lock is already under intense Treasury scrutiny - something that is not going to relent.

‘All this means that the onus of saving for retirement falls increasingly on the individual and their private pension provisions. And the worth of the current state pension is not to be underestimated.’

Calculations by the annuity provider Retirement Line last year estimated that to buy an annuity that would provide an income equal to the full state pension – more than £9,300 a year and increasing – would require the average retiree at age 66 to have a private pension pot of more than £330,000. Given that the average worker will pay just under £80,000 in National Insurance over 35 years, it currently forms a very valuable part of everyone’s retirement provisions.

‘All of which begs the question “am I saving enough for retirement?” These complex calculations are mired in many variables and unknowns – including now the size and availability of state pensions – and the sums arrived at are often intimidating,’ adds Lowery.

'After all, most people are very limited by their budgets. The simple answer to “how much should I save for retirement?” is: as much as you can sensibly afford.

'One reasonable target to aim for is 12.5% of earnings. For those in workplace pensions this might not be as much as it seems. Employer contributions and tax relief, at a minimum of 20%, could make up more than half what is paid in.

‘And the power of compound returns – whereby your savings pot grows exponentially on top of what you put in – means that contributions made early in life are far more powerful and valuable than those made later on.

‘It is the self-employed, small business owners and increasingly those in the gig economy - who are not given the nudge of auto-enrolment and who don’t generally benefit from employer contributions – who need to kickstart their private savings.

‘Anyone in this part of the workforce who does not have one should consider opening a self-invested personal pension (or SIPP) – even if they are paying in just 1% of their earnings as it is important just to make a start.’


This release was previously published on Tilney Smith & Williamson prior to the launch of Evelyn Partners.