With the state pension age set to rise, UK workers have been told that saving £75 a month could help bridge the gap between an extended delay and eligibility for the state pension. According to an analysis, preparing for any retirement payment gaps do not require you to stretch yourself too much.
The research comes amid reports that the state pension age could increase to 68 earlier than planned. OBR documents indicate that the timeline for this change could be brought forward by seven years, leaving workers facing a significantly longer period without Government support.
Several factors are contributing to the potential move. The nation has an ageing population, with life expectancy continuing to rise while birth rates fall.
This widens the gap between those claiming the state pension and working-age taxpayers who fund it. Additionally, with the triple lock guaranteeing an annual increase based on the highest of inflation, earnings growth, or 2.5%, the payment of state pensions is simply becoming extremely expensive.
The news of an increasing state pension age has sparked concerns among many Brits. Individuals can make little financial changes now to help them in the future.
Those aged 49 can save just over £50 a month after tax relief to build up enough savings to cover an additional year without state pension income.
The £50 monthly figure is designed to replace just one year of projected state pension income during the additional waiting period, not to substitute for lifetime payments, GB News reports.
Someone aged 55 would need to contribute approximately £75 a month to achieve the same outcome.
The calculations may not work for everyone as they are based on several assumptions: you are a basic-rate taxpayer living in England and receive standard pension tax relief on your contributions; an annual investment growth of 5%; and an annual state pension increase of 2.5%.
When the fund is eventually accessed, the model assumes that a quarter is withdrawn tax-free, while the remaining three-quarters are subject to basic-rate tax.
Adam Cole, retirement specialist at Quilter, said: “Rather than relying solely on Government provision, individuals should view developments like this as a reminder of the importance of building their own retirement savings.”
He added: “While no one welcomes changes to the goalposts, these examples highlight the power of starting early.
“Small, regular pension contributions, combined with tax relief and investment growth over time, can provide valuable flexibility and help reduce dependence on an increasingly stretched state pension system.”