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The Actuary The magazine of the Institute & Faculty of Actuaries

‘State pension shortfall day’ highlights £5,000 finance gap

From today until the rest of the year, the average retired couple living in the UK will have to find alternative sources of income to their state pension in order to cover their spending.

Pension shortfall ©Shutterstock
Pension shortfall ©Shutterstock

Analysis from financial services firm Just shows there is a financial gap of £5,177 between the annual spending of retired couples, and that provided by the full state pension.

This is based on figures from the Office for National Statistics which suggest the average retired couple’s spending power is £21,770 a year, while the state pension provides just £16,583.

Dubbed ‘state pension shortfall day’, 6 October marks the day these couples will have to rely on private pensions, savings and investments to fund nearly three months of expenditure this year.

Just communications director, Stephen Lowe, said: “The state pension still only covers about three in every four pounds that the average couple has to spend over the course of the year.

“This further highlights the importance of people building up workplace and private pension savings to balance the household budget, and of having investments to fall back on.”

The findings have heightened concerns about the rising number of pension savers accessing benefits early that may be unaware of the long-term impact it can have on income in later life.

This comes after research from the Financial Conduct Authority found that accessing pension pots early has become the ‘new norm’ since freedoms were introduced in 2015.

It shows that 72% of the pots accessed since then were by people aged under-65, with half of these fully withdrawn.

“That’s fine if they have other sources of capital or income, but many people struggle to save enough into a pension,” Lowe continued.

“Taking it out the pension years earlier than necessary could well harm its future income potential.”

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