Five options for retirees reliant on the State Pension
The number of single people relying solely on the State Pension for retirement income has increased by a quarter since 2011.
Analysis of data from the Department for Work & Pensions (DWP) reveals 1.1 million single pensioners rely on the state for financial support in later life – the highest number in over 20 years.
An additional 330,000 pensioner couples are also entirely dependent on the State Pension which stands at £122.30 a week (basic) or a maximum of £159.55 per week under the new State Pension scheme.
But as pensioner poverty is still a challenge and with the State Pension unlikely to provide retirees with a comfortable income later life, here are five alternative options to consider:
1) Top up National Insurance Contributions
This option is generally for those who are nearing retirement, rather than those already in receipt of the State Pension.
All men born on or after 6 April 1951 and all women born on or after 6 April 1953 who reached retirement on or after 6 April 2016 qualify for the new State Pension. The maximum you can get is £159.55 a week but not everyone will get this as it depends on whether you’ve paid full rate National Insurance Contributions (NICs) for 35 years (or been entitled to NI credits). To get anything at all, you need a minimum of 10 years’ worth of contributions.
The first thing you should do is check your NI record for gaps, especially if you had low earnings, were self-employed, lived abroad or you were unemployed and claiming benefits. If you do have gaps, you may be able to voluntarily top them up to increase your State Pension. You can usually only pay for gaps from the past six years, though depending on your age, you may be able to go back further.
For the 2017/18 tax year, the rates are £2.85 a week for class 2 contributions and £14.25 a week for class 3 contributions, though for earlier years, you’ll pay the rates given from the previous tax years. For anyone considering this, it’s worth getting financial advice first and you could contact the Future Pension Centre to see if there are any other ways of increasing your State Pension, depending on your personal circumstances.
2) Equity release
For the asset rich but cash poor individual, equity release could be an option for homeowners aged 55 and over. It enables you to stay in your home but allows you to free up cash in the form of a lump sum, regular income or both, via a mortgage or reversion plan.
Stephen Lowe of retirement services group, Just, said equity release is more frequently used now as people are finding they’re getting less money in retirement.
He said: “We’ve seen an increasing number of people release equity to top up their retirement income; it isn’t just for expensive holidays but for many people, they need to generate more money each year for essential bills such as heating and eating.”
Equity release lender more 2 life’s Stuart Wilson said property wealth is “an ace up many people’s sleeves” but it is essential that retirees and those about to reach State Pension age are made aware of how they can use their homes to access funds, safely and easily.
He said: “Borrowers may not be aware of the benefits and competitive rates that are now available from equity release lenders. Rates have been declining in the equity release sector and are on average around 4.5%, considerably less than rates on loans and credit cards. Some consumers may also be unaware that there are plans available on the market now offering the ability to repay some of the original capital each year without penalties, as well as ‘interest served’ plans also being available. This provides even greater flexibility to those who need to borrow in retirement but want to mitigate the cost of that borrowing to keep it as low as possible.”
Read: Back to basics: a guide to equity release for more information.
For individuals pottering around in a large family home, the other way to tap into property wealth is to downsize, selling a more expensive home for a cheaper and smaller property.
A nationwide survey of estate agents revealed a growing demand from clients looking to downsize to raise cash with two out of three surveyed reporting a rise in enquiries over the past year.
However, a lack of suitable homes for downsizers is forcing up their prices, meaning many older people are actually unrealistic about the amount of money they’ll be left with once downsizing. In turn, this is pushing up the equity release sector.
4) Continue working and defer claiming State Pension
There are currently more than one million people aged 65+ who continue to work, which is double the rate seen at the turn of the twentieth century. For some it may be because they’re not ready to stop working, to take advantage of flexible hours or because they need to boost their pension income and can’t give up the current rate of pay.
Lowe said that non-homeowners have limited options but Just is seeing an increasing number of people who would usually retire at 63 or 64 now working until their late 60s and even into their early 70s. He said this may not be a “desirable place for everyone” such as those in ill health or physically demanding jobs, but could be valuable to others.
See YourMoney.com’s Plan to work past state pension age? The key facts for more information.
If you continue to work and therefore have an alternative income, you could decide to defer claiming your State Pension. This means, in time, you accrue higher weekly payments. You get 1% extra for every nine weeks you defer (for those who reach state pension age on or after 6 April 2016) so that’s a 5.8% increase a year. By deferring for a year, you’ll get an extra £479 a year, which is actually just under 5.8%.
Gloria Barker, head of product at Saga Money, said people could look to increase incomes in other ways too. “Could you rent out a room, get paid for work you currently offer for free e.g. consultancy or become a paid member of the charity you volunteer for?”
5) Check your benefit entitlement
More than half of pensioner homeowners are failing to claim benefits they’re entitled to, meaning they’re missing out on an average of £576 per year. Research from Just revealed that half of people eligible for State help missed out on at least one benefit, one in 15 missed out on two and one in 30 missed out on three. Lowe said that just because you’re a homeowner, it doesn’t mean you’re not struggling financially. You could be entitled to State Pension Credit, Council Tax Support, Disability Living Allowance, Attendance Allowance and help with heating. To see what you’re entitled to, check the Money Advice Service, Age UK or Entitled To.
A final point is to make sure you shop around for energy, insurance and other financial product services and review your outgoings to help you save money.