Political Sketchbook: Pensions and Old Age Problems

Alpesh Patel Tuesday 22nd June 2021 04:07 EDT

As the UK Chancellor mulls getting more tax revenue from pensioners, the ageing UK population has a lot on its plate.


When the time comes to retire, most people know they will have to rely on some sort of pension. However, over 60% of respondents in one survey I read, said they did not think their expectations for their future retirement would be met with the type of pension they were expecting.


This led 45% to feel 'discouraged' and 29% to feel 'very discouraged'. In fact, 28% said life after retirement would be around as challenging as when working full-time.


The report points to the fact that over 60% are now concerned about their ability to fund their own retirement.  Over a quarter (27%) have less than £10,000 in savings and 1 in 10 (10%) have nothing at all.


Many respondents expect to find it difficult to provide for themselves in retirement, with 60% believing that they will need to work hard all their life and 42% expecting never-ending work.

The report also shows that low-income levels in retirement are a concern for many.


Over 68% said they would worry if the state pension were cut, with 59% saying they would have to work even harder in their retirement. (Age UK)


If you are older and more concerned about your pension, then you need to be aware that your average pension pot is not as large as it seems and if you're younger, you need to be thinking about saving more.



From the age of 60, your monthly spending power will continue to fall as you stop collecting your state pension. In addition, this is unlikely to be enough for you to live on for long either.


Let's say a single person aged 65 who has no other income will need an income of just £405 per month (£8,903 per year) in their final ten years of retirement to maintain their living standards in retirement. (Unrealistic in London).


But what about a more realistic scenario? Let's say we take a single person who is 65, they will have their £20,000-£25,000 pension pot but they are also entitled to claim the basic state pension payment of £5,500 per year. This means that the total income they can expect is £6,500.


Even though this person has saved a pension pot and is also entitled to claim the basic state pension payment, their annual spending power of £6,500 will leave them with less than £3,000 left after paying off their housing costs (assuming they rent) and council tax. This means that they only have around £1,700 per month to live on. That would provide you with around £200 per month for food shopping.


This person is unlikely to be able to maintain their living standards on this small income, and if they are unlucky they might even run out of money by the time they are 80.


In order to afford housing costs, the basic state pension and any other essential bills such as council tax, this person needs £2,500 a month. If they continue to live in their current home and wait until the age of 85 before moving into a smaller property with lower council tax rates then they will only have around £1,000 leftover each month for discretionary spending.

For most people living on this kind of income it simply isn't enough to cover many of your daily bills let alone keep you going for the rest of your life.


I could continue to list more average incomes, but what I hope to demonstrate is that for most people living on median income levels this will not be enough to minimise poverty in old age.


I have also been asked where all this money goes when it is paid into a pension plan. It goes to fund managers buying stocks. Recently, thankfully, stocks have risen sharply if your fund manager was good enough to buy US and not just UK stocks (most don't).


It's not that you have not saved enough, it's that the fund managers to whom your money goes to manage it have let you down - just ask Neil Woodford.


A glimmer of hope - whatever your age, save more, max your SIPP allowances, and learn to buy stocks yourself and cut out rubbish middlemen. Even the most snooty commentator won't criticise you for buying Microsoft. Of course the closer you are to retirement the more money should be in bonds or a bank account to avoid the risk of market falls just before retirement.

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