State pension rise still leaves retirees £1k below minimum income standard
In April 2021, the state pension will rise by 2.5% under the triple lock mechanism.
This will mean the ‘old’ basic-rate state pension will rise by £3.35 a week from £134.25 to £137.60, (topped up to £177.10 a week by guaranteed pension credit).
The ‘new’ flat-rate state pension – introduced in 2016 – will rise by £4.40 a week from £175.20 to £179.60.
Despite the rise, the state pension “still falls short of the minimum income standard”, by £1,373 a year, based on the ‘new’ £9,339 annual pension rate, according to Just Group analysis.
Anti-poverty charity, the Joseph Rowntree Foundation gives the minimum income standard for a single pensioner as £10,712 a year.
Stephen Lowe, group communications director of Just Group, said: “These standards are an important sense check about the minimum income people should be aiming to generate in retirement.
“They show the importance of private sources of pension income, however modest, to provide a top-up to achieve an acceptable standard of living. People may not realise that even relatively small pensions can make the difference between struggling on too little money and having enough to cope in retirement.”
In order to generate the £1,373 difference, Just Group said a healthy 67-year-old would need a pension fund of about £30,000, but the exact amount could be less depending on medical conditions and lifestyle.
However, with many taking pension cash early, nine in 10 pensions fully withdrawn from the age of 55 are valued at less than £30,000.
Lowe added: “On the one hand people know they don’t want to be reliant solely on state pension but on the other hand huge numbers are emptying pensions as soon as they can.
“That’s not a problem if people have made informed decisions and weighed up the consequences but could be a disaster if they are assuming small pensions aren’t worth bothering with and don’t realise they are going to face an income gap when they start claiming state pension.”