Why Have An Additional Pension?

You are entitled to a State Pension from the government when you have reached State Pension Age and made sufficient National Insurance contributions throughout your working life. However, unless you have other sources of retirement income to help you cover your outgoings, you may find it hard to survive on the basic State Pension alone.

The full-rate State Pension is currently £87.30 for a single person, and £139.60 for a couple. This is equivalent to an annual income of approximately £4,530 for a single person and £7,250 for a couple. If you have a very low income you may be entitled to the Guarantee part of Pension Credit, which will top up your income to the Minimum income Guarantee determined by the government as necessary to cover basic expenses. The Minimum Guarantee is currently £119.05 a week for singles and £181.70 a week for couples, equivalent to an annual income of approximately £6,190 for a single person and £9,440 for a couple.

If we take into account that based on the Residential Retail Price Index1, the average rental price in the UK is currently £620 a month, rental costs alone would be £7,440 a year. A single person on Minimum Guarantee would not be able to afford to rent without claiming extra benefits such as Housing Benefit. A couple on Minimum Guarantee would have £2,000 a year after paying rent, just over £38 a week, to cover utilities, food, clothing and transport plus any extra costs. With the average price of a loaf of bread at £1, of a pint of milk at thirty-nine pence, and of a fresh chicken at £2.49 per kilogram, your State Pension allowance will not buy you very much.

When you have retired and are contemplating a few years rest, relaxation, travel and fun you do not want to be restricted by your financial situation. Nor do you want to feel that you cannot afford to have private medical treatment if you face a life-threatening disease. An extra savings scheme such as a private pension would enable you more financial freedom, with the added security of an extra retirement income and the flexibility that not relying on the state system will afford. With a private pension you can retire before State Pension Age and live off the income from your investments until you qualify for the State Pension. For further details of the State Pension system see State Pensions.

A private pension can ensure that you will not need to work past retirement age to keep your household above water. You can usually make extra payments to a private pension scheme if you find yourself with more disposable income, securing a higher pension benefit on retirement. The money you invest remains invested until the agreed retirement age, preventing you from spending your savings ahead of time and facing a financial deficit in your old age. Most private pension schemes also offer their savers a tax-free lump sum on retirement, often as much as a quarter of your total pension savings; use your lump sum to make your dreams of worldwide travel a reality, or furnish your home the way you really want it to be for your retired years. You do not have to pay into a private pension scheme, and if you have a very low income it may not be advisable to do so. However, with the right advice and a good investment in your future you can ensure financial security and peace of mind in later life.