Let’s be honest, on the morning of 21 October few of us were waiting with bated breath as the latest UK inflation stats were revealed. But, for millions of people, that moment was significant.
That’s because the September (Consumer Price Index) CPI inflation figure forms part of the government’s ‘triple lock’ formula used to determine the forthcoming rise in the level of State Pensions.
The triple-lock safeguard was introduced by the Conservative-Liberal Democrat coalition in 2010 and aims to ensure that the value of the State Pension is not eroded by inflation. The three-pronged guarantee states that, each year, the State Pension will increase by whichever rate is higher out of: September’s CPI inflation; July’s average earnings growth, or 2.5%.
And, as September’s CPI was 0.5% and July’s previously announced earnings growth was 1.0%, next year’s State Pension is set to rise by 2.5%, the minimum amount allowed by the legislation. As a result, from April 2021, pensioners on the ‘old’ basic State Pension will see weekly payments increase by £3.40 to £137.65, while the full ‘new’ single-tier State Pension will rise by £4.40 to £179.60.
Don’t rely solely on it
The actual amount of State Pension retirees receive is also dependent on their National Insurance record. To qualify for any State Pension, you need at least 10 years’ worth of contributions, while to obtain the maximum amount, 35 qualifying years are required. This means the amount pensioners receive can vary significantly with some not entitled to any State Pension at all.
Additionally, experts have stressed that, even if you do qualify for the full State Pension, this on its own is not enough to retire on. Indeed, analysis shows that, on average, retirees require more than twice the maximum State Pension to enjoy a comfortable retirement.
Plan, plan, plan
In other words, people need to build up a sizeable nest egg which can be used to supplement any State Pension payments, if they wish to retire in relative comfort. Personal pensions are the most common way of doing this, largely because of their favourable tax treatment, but other investments, such as ISAs, can also be used to accumulate retirement funds.
The key is careful planning. And, as retirement planning is never a case of ‘one size fits all’, it’s vitally important to obtain expert advice to ensure any plans are tailored to meet your specific needs. If you’re worried about how you might survive on the State Pension and need help creating a well-structured retirement plan, then we can assist – we’re only a phone call away.