It is hard to imagine being a pensioner in your twenties. It seems like a completely different life away. Even in your forties, you might think you have plenty of time to prepare for life in retirement. However, despite much focus on work-based pensions, pension poverty in the UK is on the rise again. The trend was spotted by the Joseph Rowntree Foundation nearly two years ago. However, as we live through another winter of high utility bills, the issue of poverty in retirement has raised its head once more.
Am I really at risk of pension poverty?
It is easy to feel comfortable when you have a teachers’ pension. You have heard how generous it is and you know you will receive a state pension too. However, with the rising number of people renting, the increasing cost of living – including housing costs – as well as a desire to live a comfortable lifestyle – you might not be as prepared as you think.
Over 300,000 more pensioners are living in poverty compared to 2012. Over half of these are due to the increased prices in renting homes, with one in five pensioners being renters.
However, there is also the cost of care that comes when we retire. If we need to go into a care facility, we could easily see a thousand pound or more a week leave our bank accounts. The social care crisis is only set to worsen without proper intervention by the government. Consequently, any thought of relying on state assistance in times of need is likely to be fruitless.
What can you do to prepare for your old age?
Those in most difficulty in old age are those that are forced to continue to pay rents. Due to the housing shortage, the rental market is highly competitive, which is pushing prices up. If you are having to find close to £700 a month to live in your home, your pension will feel like a sparse amount. Therefore, one option is to buy a home while you are working. When you purchase property at 30, you will have paid off the mortgage by the time you hit 55. 55 is the age you can first take early retirement.
If buying a home is well out of your reach, you can look to contribute more to pension. The Teachers’ Pension Scheme has many flexibilities that allow you to pay more into your fund. The lump-sum you receive on retirement and the pension earnings you get each month can be substantially subsidised now.
Alternatively, you could speak to an independent financial advisor about other savings and investment opportunities. Depending on your level of tolerance for risk, there are lots of places you could store surplus cash for your future comfort.
The content in this article was correct on 10th February 2020. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on pensions for teachers and non-teachers. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.