Huge gap between money needed for retirement and state pension
Retired people in the UK are facing financial problems. According to a new research, there is a huge gap of £25,413 between the income needed for retirement and the current state pension**. This gap is becoming a serious problem for those who depend only on state pension.
How much money is needed for a comfortable retirement?
According to the research, £36,915 will be needed annually to live a comfortable life after retirement in 2025. If you want a slightly more comfortable life, this amount increases to £50,000 annually.
On the other hand, the full rate of UK’s state pension in 2024 is just £11,502 per year** (about £221 per week). This huge difference is a matter of concern for those who depend solely on this pension.
Cost of moderate and comfortable retirement
The research shows that:
- Moderate retirement lifestyle requires £31,848 per year.
- Comfortable retirement lifestyle requires around £50,000 per year.
This makes it clear that it is important to supplement the state pension with additional savings or investments.
Major expenses in retirement
Some major expenses always remain after retirement. The biggest of these expenses is on Housing and utility bills. The research estimates the main expenses as follows:
Essential Costs:
- House and mortgage payments: £7,600
- Fuel and electricity: £3,600
- Transport: £3,392
- Food and drink: £3,530
Non-Essential Costs:
- Entertainment and cultural activities: £3,238
- Eating out (restaurants and hotels): £1,667
The situation becomes even more difficult for those who have a mortgage left. According to the research, at the age of 65, retired people have a mortgage outstanding of £38,000. If they want to pay it in 5 years, there will be an additional burden of £7,600 annually.
Why are people not able to make proper preparations?
Even though people know that the state pension is not enough, they still do not prepare for retirement at the right time. According to research done by Shepherds Friendly, the state pension provides only a basic security. It is not enough to meet all the needs of retirement.
Main reasons:
- Delaying retirement planning:
- Many people are entangled in career and current expenses, due to which they do not start saving for retirement on time.
- Increasing pressure of inflation:
- Due to increasing everyday expenses, people are not able to save enough, due to which they become dependent only on the state pension.
- Lack of information:
- Many people do not know how much income will be needed every year in retirement. This ignorance often prevents them from saving enough.
Why is saving early important?
Financial experts say that it is very important to start saving early for retirement. Depending only on state pension can create difficulties in the future.
Benefits of saving early:
- Your savings and investments increase over time.
- The impact of inflation and rising costs is reduced.
- A better and comfortable retirement can be ensured.
Conclusion
People in the UK are facing serious financial challenges due to the huge difference between state pension and retirement needs. In such a situation, it is important that people plan their finances in time.
What to do?
- Contribute to private pension.
- Start saving and investing early.
- Estimate your annual income needs correctly.
Do not delay preparing for retirement. Small steps taken today can make your future financially secure and stress-free.
FAQs
Why is the £25,000 shortfall significant for UK retirees?
It represents financial challenges retirees face in maintaining a comfortable lifestyle without adequate pension planning for future expenses.
What factors contribute to the pension shortfall?
Rising living costs, insufficient savings, low interest rates, and reduced employer contributions are key factors causing pension shortfalls.
What role does the state pension play in covering the shortfall?
The state pension provides a baseline income but often falls short of supporting the standard retirement lifestyle retirees aspire to.
