Back to basics as state pension leaves shortfall

POLITICIANS will have to work harder to convince people that the state pension is safe in their hands, as growing numbers believe it will no longer be around when they retire.

The Conservative and Labour Party have both pledged to maintain the “triple lock” that guarantees healthy annual pension increases, but many question how sustainable this is in the longer run.

Almost one in four over-55s worry the state pension will not be there for them, rising to one in three between 35 and 54, according to research from Hargreaves Lansdown.

Senior analyst Nathan Long said women are particularly suspicious, because their state pension age has been rapidly hiked from 60 to 66.

Another reason for widespread scepticism is that many of those who do qualify for the state pension do not receive the full amount.

Of the 1.1 million who claim the new state pension, introduced in April 2016, only 44 per cent get the full £168.60 a week, Department for Work & Pensions figures show.

A third get less than £150, while some get less than £100.

Stephen Lowe, group communications director at retirement adviser Just Group, said this is a problem given that it scarcely offers an adequate standard of living, even if you qualify for the full amount.

The problem has got worse, as 65 per cent of those who retired on the old state pension got the full amount.

However many of them will be struggling, as that only pays £129.20 per week, plus potential additional second pension on top.

“The safety net is more threadbare than people think,” Lowe said.

Canada Life technical director Andrew Tully said people fall short because they have gaps in their working history and did not make enough NI contributions, while others contracted out, often without realising.

Under the state pension triple lock, which both the Conservatives and Labour have pledged to keep, it increases either in line with earnings, inflation or 2.5 per cent, whichever is higher.

The new state pension will climb to £175.35 a week from April 2020, worth an extra £351 a year, a rise of 4 per cent in line with earnings growth.

Tully said the state pension is a “minefield” and your first step is to request a state pension forecast at website Gov.uk.

“If facing a shortfall, consider paying ‘voluntary’ Class 3 National Insurance contributions to plug the gap,” he said.

These cost roughly £780 for each additional year and you can normally go back six years, and further in some cases.

If you stopped work to look after young children and elderly relatives, make sure you claim NI credits.

For further support, seek independent financial advice.

Or you can contact the Government-backed free and impartial Pension Wise guidance service.