Pensioners could be left short of nearly £3,000 this year (Image: Getty Images)
State Pensioners are set to miss out on over £2,000, according to fresh research. The government’s commitment to the will see the maximum rise from the current £11,502 to £11,973 per annum.
However, this falls significantly short of what’s needed for a comfortable retirement. The Pensions and Lifetime Savings Association suggests that a single person requires £14,400 annually to maintain a minimum living standard in retirement.
Meanwhile a moderate standard requires around £31,300. The ensures payouts increase each new financial year by one of three measures – whichever is highest: wage growth, inflation or a flat 2.5%.
The anticipated £460 increase next year is based on a wage growth of 4.1%, considerably above the minimum increase threshold. The Office for Budget Responsibility has flagged the as a ‘fiscal risk’ due to its ‘ratcheting effect’, which can put significant pressure on public finances through escalating pension costs.
The Institute for Fiscal Studies argues that the makes it challenging to predict government finances due to its three component. Additional complexities include the precise number of recipients with a full National Insurance record claiming the full and the number of years they will be claiming.
Current estimates for spending on the by 2050 range dramatically from £5 billion to £45 billion annually, owing to these uncertainties.
The Financial Times has pointed out that in the wake of potential changes to the , adopting a ‘single lock’ tied only to earnings growth could make for a more fair and sustainable option compared to the present system. The OECD recommends an adjustment to pensions that tracks the average between earnings growth and CPI inflation, with extra targeted support for pensioners who are less well-off.
Meanwhile, research shows that around one in ten workers with defined contribution (DC) retirement plans aim to boost their contributions this year. According to Zoe Alexander, director of policy and advocacy at PLSA: “The start of a new year is the perfect time to reset financial goals and, while everyday needs such as reducing spending or saving for short-term plans often take priority, it’s encouraging to see people across different age groups turning their attention to pensions.”
She also noted that “Younger savers are focusing on building strong financial habits early, while those approaching retirement are prioritising reviewing their plans to ensure they’re on track.”
Additionally, Alexander emphasised the importance of active engagement for those with DC pensions: “Those with defined contribution pensions are more likely to need to take positive action themselves to secure the retirement they expect, as saving at the default 8% may not get them there.
“Small changes – such as reviewing investment choices, increasing contributions by even a small amount or making sure they are taking advantage of employer matching contributions – can make a real difference over time. These pensions offer valuable opportunities to build a secure future, but taking action early is key.”