Life in Old Age, Pensions And Poverty In The UK – What Does It Look Like?

2/8/2016

Lots of scary statistics get thrown around regarding the negative retirement prospects for current 30-somethings (and even worse for those younger than us), so this week I’ve decided to dig deep. I’ll write a series of 3 articles on retirement: what do that the stats look like in the UK and the US and ultimately, what will it cost you to retire?

I will not do an article on retirement stats in Africa because for the most part those statistics are VERY hard to come by. However, I found a fantastical article by the OECD that looks at Pensions In Africa.

This is what I assume we all want to know:

When Do You Get A UK State Pension?
What’s The Amount of The UK State Pension?
How Much Does The Average Pensioner Actually Have In The UK?
What Do The Pension Savings of Workers In The UK Look Like?
What Proportion Of Pensioners Own Their Home Outright?

When Do You Get A UK State Pension?

The retirement age used to be 60 for men and 65 for women. It’s now been equalized to 65 for both. It’s moving up to 66 by 2020, 67 by 2028 and 68 by 2046.

I’ll qualify to get a UK state pension at the age 68 in 2051 provided I’ve paid national insurance (NI) taxes or have NI Credits. You can calculate your own pension age here.

What does this mean?

Those of us that reach retirement age after 6 April 2010 need to have 30 “qualifying years” to get the maximum state pension and at least 10 qualifying years to get anything at all.

If you don’t have a National Insurance record before 6 April 2016 you’ll need 35 qualifying years. Qualifying years are years in which:

you were working and paid National Insurance or
you were getting National Insurance Credits, e.g. for unemployment, sickness or as a parent or carer or
you were paying voluntary National Insurance contributions –

For instance, if you work abroad or aren’t working for any reason you can pay voluntary contributions to ensure you qualify for a full state pension. I see this as a sort of backup insurance policy and I would definitely do it if I was working abroad.

“If you reached the pension age before April 2010, then a woman normally needed 39 qualifying years, and a man needed 44 qualifying years during a regular working life to get the full state pension.” BBC

What’s The Amount of The UK State Pension?

If you are retiring on or after 6 April 2016 the full state pension you can get is £155.65/week, this is £8,094/year or £675/month.

This amount is guaranteed by the government to rise by the higher of:

earnings - the average % growth in wages (in Great Britain) or
prices - the % growth in prices in the UK as measured by the Consumer Prices Index (CPI) or
2.5%

But, of course, government plans do change and this guarantee could fall away if the UK hits problems. There is a lot of press surrounding this possibility right now.

How Much Does The Average Pensioner Actually Have In The UK?

People retiring in 2016 expected income of £17,700 per annum according to a Prudential survey. They carry out this survey annually and the table below shows the results.

This number is actually £1,000 lower than in 2008 but it’s been making a steady recovery:

What Do The Pension Savings of Workers In The UK Look Like?

According to Partnership the average UK pension pot stood at £87,724 in 2015. There is a lot of variance within the UK, with Essex having the highest pension pots, £125,478, and Shropshire the lowest, £44,336. Check out where your region stands using the image below.

With compulsory workplace pensions now in effect pension savings should hopefully rise for a good majority of people.

What Proportion Of Pensioners Own Their Home Outright?

Property ownership is one of the key determinants of financial independence in old age.

Here are stats from the 2011 census carried out by the Office of National Statistics:

There are 23.4 million households in the UK.
- Out of these 7.2m were retired households (The FT, quoting the same census)
15 million are homeowners (64%) and 8.3 million are renters (36%)
Of the 15 million homeowners, 7.2m homes were owned outright while the remaining 7.8m were mortgaged
31% of owner occupied homes were documented as being inactive, i.e. not looking for work and of these 92% were retired
- We can therefore extrapolate that 2.05 million (7.2 x 0.31 x 0.92) retired households own their home outright and 2.22 million retirees have a mortgage.
36% of renters were documented as being inactive and around 50% of these were retired
- We can therefore extrapolate that 1.5 million (8.3 x 0.36 x 0.5) retired household rent their home
These extrapolated figures are very back of the envelope but we can assume based on these that 35% of retired people in the UK own their homes outright { 2.05 / (2.05+2.22+1.5) }, 25% rent and 40% have a mortgage, possibly a small one.

The obvious advantage of outright home ownership when you are retired is that you save yourself what is usually a household’s biggest expense.

Home ownership is almost necessary to guarantee a comfortable retirement because state pensions rules are changing all the time.

Personally, I hope for the best when it comes to state pensions but I certainly won’t depend on the government to look after me in old age.