Why the State Pension isn't enough for a comfortable retirement

The State Pension is the bedrock of many people’s retirement income, but on its own it’s likely to fall short of what you need in order to enjoy a comfortable retirement.

As of April 2021, the flat-rate State Pension is £9,339.20 a year – the actual amount you get is based on your National Insurance contributions, so it could even be lower. This is almost £10,000 less than the £19,000 Which?* estimates a single person will need for a comfortable retirement.

Saving for your retirement is key

With the State Pension not providing enough on its own for most people, it makes saving into your pension vital to ensure you can fund the retirement lifestyle you want.

As a USS member you’ve made a good start. Your Retirement Income Builder pension, the defined benefit part of the scheme, is like the State Pension, in that it gives you a guaranteed, inflation protected income that you can rely upon when you retire. This income is based on how many years you’ve been in USS and your salary each year, subject to a cap.

Depending how long you’ve been at USS, the income this will provide, will have a significant impact on the lifestyle you can expect when you retire.

Added to this, you can also boost your retirement savings by contributing to the Investment Builder, the defined contribution part of the scheme. If you earn above the salary threshold of £59,883.65 (2021/22) you’ll automatically join.

However, even as a USS member, it’s really worth looking what kind of money you’ll get when you retire and deciding whether it’s enough.

How much do you need when you retire?

The latest survey by Which?* suggests that if you’re single, you’ll need £19,000 a year for a comfortable retirement. If you’re in a couple you need a joint income of £26,000 a year. On average this would cover household bills and provide the odd luxury, like a holiday or a few meals out. If you want something a bit less austere, like some far flung holidays, and a new car every five years, then you’d need at least £31,000 if you’re single or £41,000 as a couple.

When do you want to retire?

Depending when you want to retire you may also need to save more in your pension, than you currently contribute.

The Retirement Income Builder pension will pay out in full at the same time as your State Pension. You can choose to take early retirement from age 55 onwards**, but this could reduce what you get. Currently the State Pension age is 66 – your Normal Pension Age at USS is aligned to this, but if your retirement is further away, between 2026 and 2028, this will rise to 67.

For members in the Investment Builder, you have greater flexibility and can take your Investment Builder pot in a number of different ways from age 55 onwards**.

Make a retirement plan

Whether you’re 40 years away from retirement or it’s just around the corner, it’s worth looking at your retirement plan. Think about when you want to retire and what kind of lifestyle you want, then look at what you’re currently set to get from the pensions you have and any other income sources and savings.

If it doesn’t look like enough or you think you might need to save more to retire earlier, then you can look at how you can boost your pension savings. As a USS member you can always boost your pot by paying additional contributions into the Investment Builder.

A great place to start with your retirement plan is by visiting our thinking about your future page for some handy tips.

*Which? article how much will you need when you retire?

**The government has announced it will raise the minimum pension age to 57 in 2028. Depending on where you are in your retirement journey, this could impact how early you can access your USS benefits.

Published: 22 June 2021