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Why You Shouldn’t Rely on a State Pension

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Are you relying solely on the state pension for your retirement? If so, you may want to rethink your strategy. As I found out, the state pension is simply not enough to live on comfortably. In this article, I'll share my own experience of starting to save for retirement and why it's crucial to have a personal retirement plan. From exploring different options such as pensions, property investment, cash savings, and company share schemes to discussing the benefits of saving into a retirement LISA, this article is a must-read for anyone who wants to ensure they have financial freedom in their golden years. Don't let retirement catch you off guard – start planning now!

Why You Shouldn’t Rely on a State Pension

Why I can't rely on the state pension and need to start saving a retirement fund

I don’t have a pension.  Well, I do have a very small retirement fund, but not an actual pension.  I only have some savings that I started saving in the last couple of years out of my self-employed earnings.  I’m continuing this year to save too and save around 10% of my income each month.  It’s not enough.  I know it’s not and I need to be looking at half of my age as a percentage to save according to Money Saving Expert, so that would be almost 20% of my income.   

At the moment that’s just too much with two young children and also trying to save an emergency fund, which at this point of my life seems more important, especially being self-employed.  I need a backup plan in case work dries up, so I must prioritise an emergency fund which will cover the bills and food if illness strikes, I can’t work for whatever reason or even if my business fails and I am out of work for a length of time.

Once that’s saved I can focus on piling more of my earnings into my retirement pot.  Pensions are something I'll look into too.  I'm not sure if they are the right option for me and I need to learn.  I’ll admit, pensions are something that I know little about and I’ve been learning as much as I can over the past year or so, ever since deciding I needed to do something about it.  Well, more like panicking and having to do something about it! 

One thing I do know though is that I can't rely on the state pension.  It's definitely not enough for most people to live comfortably after retirement.  Do you know how much the state pension is?  Read on to learn the current rates and why you shouldn’t rely on a state pension.

Do you have a pension or a retirement fund?

It suddenly hit me one day that I have no pension in place.  I’ve never had a workplace pension and until now, I’ve never had any savings.  I was always a spender.  I’ve had to teach myself in recent years to become a saver instead.  Since having children I’ve learnt to budget much better and have become more responsible with my money.   So I’ve started putting away some of my income and that will be the start of my personal pension.  I do need to open a ‘proper’ pension account as I just have a normal bank savings account at the moment which doesn’t give me any rewards or tax relief.  The interest rate is so ridiculous they might as well not even bother.  Saving into a personal pension (that’s properly set up) is a much better idea and means the government will top it up for you in the form of tax relief relative to your income tax band.

I’d love to go travelling in my 60s as I never went when younger and that’s a big regret, so I’d ideally like to retire early so I’m fit and able whilst travelling, but that’s in just over 20 years.  That gives me just 20 years to save an entire pension!  I can't see it happening.  I think many of us naively think when we’re younger (I know I did) that the state pension will provide for us when we retire.  It seems so far away we just ignore it and don’t do the calculations.  I now realise we can’t rely on a state pension for a comfortable retirement.

Can you live on state pension alone?

The 2023 state pension is £10,800 per year, that’s £883 per month.  Could you live on that?

Taking into account, of course, that by retirement age you should have paid your mortgage off so that’s a chunk of your outgoings gone.  But there’s still council tax, water, energy and home insurance that all have to be paid.  Then, nowadays, it’s pretty vital to have an internet connection and either a home phone or mobile.  Take off food, house maintenance, financing a car if you need one along with fuel and there’s really not going to be any money left.  There are many ways to save money on the weekly shop and other expenses such as haggling for a better broadband deal, but do you really want to be counting pennies in your golden years and struggling for cash

If you share a house with your partner then two pensions will go a lot further than one when sharing many of the outgoings.  If you’re single, then I’m pretty sure relying on the state pension alone will be a struggle.  It’s certainly not enough to have fun in retirement, but only to meet your basic needs (well, barely).

There is a ‘state pension triple lock’ in place with the new state pension which guarantees it will rise each year with either UK wage growth, inflation or 2.5% - the highest of these is the amount it will rise by. 

That’s great as it means we should be able to still afford to meet our basic needs even as costs rise, but is it really a ‘lock’?  No, as with everything in life, nothing is guaranteed.  I know I won’t retire for another 30 years, if I work until I'm 70, and a lot can change in 30 years.  The government will change.  New laws will pass.  Our country will change.  There might not even be a state pension by the time I retire!  I’m pretty sure that won’t be the case, but who knows. The economy and world is very fragile right now.

Anything can happen and I’m more aware than ever today that I need to start saving for my own personal pension and have my own retirement plan more than ever.

Why You Shouldn’t Rely on a State Pension

It's good to have a back up plan too (and not just rely on the state pension)

One thing that always makes me curious is people who rent houses.  You'd have to have a much larger pension in order to rent when you are retired.  We have a mortgage and so we should be mortgage free well before retirement age, which means we'll have no monthly rent or mortgage payments which will greatly help reduce our outgoings.

Of course, there's another benefit to owning a home before retirement too.  The home has lots of value and the equity will increase over the years, so even if for some reason we don't have enough saved for retirement, we have the security of our biggest asset - our house.  Owning our own home before we retire will mean we also have a backup plan if anything goes wrong with saving our retirement fund.

One of the keys to a happy retirement is financial freedom. If you are drowning in debt, you cannot enjoy all of the extra free time that comes with no longer working. There are lots of equity release schemes, the possibility of downsizing or moving into a smaller home and so on if needs be.

One unique way to alleviate those financial problems is to apply for a retiree-only reverse mortgage.  In the UK it's more commonly known as a lifetime mortgage. If you qualify, a reverse-mortgage calculator online tool is used to see how much home equity you have and how much you can extract in the form of cash. Then the money is provided to you in set amounts each month, unless you request a large payment or other arrangement. You choose when and how much you pay back as time passes. For as long as you stay in the home, the agreement stays active. You basically release some of the value (equity) held in your home.  This, and any interest accrued, is usually then repaid when you die or when you move into a care home.  Just research this option in depth and read all the terms and conditions as it may not be the best option.

Alternative options to a state pension alone

If you’re really not keen on starting a pension, perhaps because of the risk of the investment or fear a mis sold pension then you’ll need to know what your other options are.  Even if you don’t save an actual pension, you’ll need to stash away some money ready for your retirement.  If you have no retirement savings then you might struggle in your senior years.  Once you’re no longer able to work, or no longer want to anymore, then you’ll need enough money saved to last up to 30 years and maybe more!

Here are some of your alternative options to save for retirement:

Pension options

When planning for retirement, pensions are often the first option that comes to mind.  But you don't have to purely rely on the state pension.  You can also have an employee pension if you work for an emploer and you can even have an additional pension yourself.

The UK offers two main types of employee pensions - defined contribution and defined benefit. With a defined contribution pension, you and/or your employer contribute to your pension pot, which is invested to build up a retirement fund. With a defined benefit pension, your employer promises you a guaranteed income for life upon retirement.

It is possible to invest in your own pension plan in the UK, outside of an employee pension scheme. There are several options available, including personal pensions, self-invested personal pensions (SIPPs), and stakeholder pensions.

A personal pension is a type of pension plan that you set up yourself, which is separate from any employer-sponsored pension schemes. With a personal pension, you make contributions into the plan, and the plan invests the money on your behalf. The amount you receive in retirement will depend on the performance of the investments and the amount of contributions you have made.

A SIPP is a type of personal pension that offers more control over the investments within the plan. With a SIPP, you can choose from a wider range of investment options, including individual stocks and shares, investment funds, and commercial property.

A stakeholder pension is another type of personal pension that is designed to be simple and low-cost. With a stakeholder pension, there are limits on the fees that can be charged, and the investment options are limited to a set range of funds.

You can also choose what to invest in to suit your morals.  For example, you can choose a climate-friendly pension plan or opt for ethical investments only.

It’s important to understand the different types of pensions and how they work, as well as the potential benefits and drawbacks of each. Consider speaking with a financial advisor to help determine which pension plan is best suited to your individual needs and goals.

Invest in property

This can be in the form of your own property, as mentioned above, which can provide you with a lump sum of cash in your retirement if needed or you can release the equity.  You could also choose to buy a property to let - providing you with a regular monthly income.

Investing in property can be a viable option for retirement planning, as it can provide both rental income and the potential for capital appreciation. However, it’s important to keep in mind that property investment comes with its own set of risks, such as market fluctuations and unexpected maintenance costs.

When considering property investment as a retirement strategy, it’s important to research the local property market and potential rental yields, as well as consult with a financial advisor or property investment expert. Additionally, it’s important to ensure you have adequate savings to cover any unexpected costs or periods of vacancy.

Cash savings

If you really don’t want to risk investing any money then cash savings are your best bet.  The only downside being the interest rates are nominal so you’ll get back the cash you saved, but not much else.  If you want your money to grow significantly then this isn’t the best option, however it can be used in conjunction with other investments.

While cash savings accounts generally offer low interest rates, they can still be a valuable component of retirement planning. Building up a cash savings fund can provide a safety net in case of unexpected expenses or income disruptions, as well as provide a source of funds for short-term goals in retirement.

Company share schemes (SAYE)

Save As You Earn schemes are a great way to, sometimes, get a high return on your investment - much more than regular savings.  If your company offers a share save scheme then it’s worth finding out.  You are able to buy shares in your company for a fixed price.  You save for three or five years and at the end of the scheme you usually have the option to buy the shares at the fixed price, which is a great deal if the share price is now a lot higher, or to take the cash saved.


Individual Savings Accounts (ISAs) can also be a useful tool for retirement planning. These accounts offer tax-free savings and investment options, including cash ISAs, stocks and shares ISAs, and lifetime ISAs. By contributing to an ISA account, you can maximise tax benefits and potentially build up a significant retirement fund over time.  You can save up to £20,000 per year within ISA accounts (correct as of 2023).  You don’t pay any tax on these savings when you withdraw them.

Keep working

Another option is to carry on working.  Maybe you love your job and you never want to retire!  With the state pension coming in you can probably choose to work less and semi-retire!  It’s best to have a plan in place with retirement savings though as you can never guarantee perfect health in later life and old age might catch up with you leaving you unable to work, even if you want to.

For some, continuing to work in retirement can be a viable option for supplementing income and staying active. This could involve working part-time or consulting in a field you enjoy. While it’s important to have retirement savings in place, working in retirement can provide additional financial security and social benefits.

It’s important to carefully consider the potential physical and mental impacts of continuing to work in retirement, as well as the impact on your pension entitlements and tax implications. Consult with a financial advisor to help determine whether working in retirement is a viable option for you.

Equity release

As we touched on above, equity release is a way to access the equity in your home without having to sell it. This can be a viable option for retirees who need additional income or want to supplement their retirement funds. Equity release schemes typically involve either a lifetime mortgage or a home reversion plan.

It’s important to carefully consider the potential risks and benefits of equity release before deciding whether it’s the right option for you. Equity release can impact inheritance, reduce the value of your estate, and result in higher costs over the long-term. Consider consulting with a financial advisor or equity release specialist before making a decision.


An annuity is a financial product that provides a regular stream of income in exchange for an initial investment or premium. An annuity can be purchased from an insurance company or financial institution and is designed to provide a stable income stream over a predetermined period, typically for the rest of the annuitant's life.

The annuitant makes an initial payment, either as a lump sum or through a series of payments, and the insurance company or financial institution guarantees to make regular payments to the annuitant based on the terms of the annuity contract. An annuity can be fixed or variable, meaning the payments can either be a fixed amount or vary based on the performance of the underlying investments.

Annuities are commonly used for retirement planning because they provide a guaranteed stream of income, which can help retirees meet their financial needs and maintain their standard of living. However, annuities can also have drawbacks, such as fees and potential tax implications, and may not be suitable for everyone.  Many people think annuities are bad.  It is important to carefully consider the terms of an annuity contract and consult with a financial advisor before making any investment decisions.

The benefits of saving into a retirement LISA 

Since writing this blog post originally in 2018, I started saving into a LISA as well as a savings builder account.  The LISA is great for those of us who are self-employed to save for our future retirement as they give a 25% bonus on up to £4000 per year.  That's potentially £1000 of free cash each year you can save into the LISA!  Read more in my blog post at Moneybox Cash Lifetime ISA for retirement as there are some age limits and savings limits.

Why You Shouldn’t Rely on a State Pension

The importance of starting to save for retirement as early as possible

Starting to save for retirement early is crucial to building up a substantial retirement fund. The earlier someone starts, the more time they have to build their retirement fund and potentially benefit from compound interest and essentially make more money doing nothing. For example, a 25-year-old who saves £200 a month at a 6% interest rate could have nearly £300,000 by age 65. In contrast, a 45-year-old would need to save more than £700 per month to achieve the same amount by age 65.

In addition to having more time to build up retirement savings, starting early can also give individuals more flexibility in terms of retirement options. Early savers can consider more aggressive investment strategies that may have higher potential returns but also carry more risk. This is because they have more time to recover from potential losses before retirement.

Furthermore, starting to save early can also help to alleviate stress and anxiety about retirement. Knowing that you have a solid retirement plan in place can provide peace of mind and allow you to enjoy your working years without worrying about what the future holds.

Of course, it's never too late to start saving for retirement and be in control of your money, and even small contributions can make a difference over time. However, the earlier you start, the easier it will be to build up a substantial retirement fund that can provide financial security and freedom in your golden years. It's important to consider retirement planning as a long-term investment in your future, and to take action as soon as possible to secure your financial future.

The impact of inflation on retirement savings

Inflation is a key factor that can have a significant impact on retirement savings, especially over a longer time period. It refers to the general increase in the price of goods and services over time, meaning that the purchasing power of money decreases. For example, a cup of coffee that costs £2 today may cost £3 or more in five years' time due to inflation.

Retirees may face an even greater risk from inflation, as they are typically living on a fixed income. If the rate of inflation is higher than the rate of return on their investments, then their savings could be eroded over time, making it harder to maintain their standard of living.

To combat inflation, retirees should consider investing in inflation-protected securities, such as inflation-indexed bonds, which adjust their interest rates to keep up with inflation. Another option is to diversify their portfolio to include assets that typically perform well during inflationary periods, such as commodities or real estate. These assets tend to increase in value when inflation is high, which can help to offset the negative impact of inflation on their savings and keep saving sustainable over the long-term.

It is also important for retirees to regularly review their investment portfolio and adjust it as needed to ensure that it remains aligned with their financial goals and risk tolerance. Seeking the advice of a financial advisor can be helpful in developing a retirement investment strategy that takes into account the impact of inflation.

Preparing for unexpected expenses in retirement

Preparing for unexpected expenses in retirement is an essential part of retirement planning. Many retirees underestimate the impact of unexpected expenses, which can include healthcare costs, home repairs, or other unforeseen expenses. These unexpected costs can quickly eat into retirement savings and make it challenging to maintain a comfortable standard of living.

One way to prepare for unexpected expenses is to build an emergency fund. This should be a separate savings account that is used exclusively for emergencies, such as unexpected medical bills or home repairs. Ideally, an emergency fund should cover at least six months of living expenses.  It's important to have an emergency fund before retirement too as you never know when you might lose your job or have an unexpected expense.

Retirees should also consider long-term care insurance to cover the costs of medical care or assistance with daily activities in case of a chronic illness or disability in old age. Long-term care insurance can help retirees to avoid the high cost of healthcare and ensure that they receive the care they need.

Creating a budget and identifying potential expenses can also help to prepare for unexpected costs. By tracking expenses and identifying areas where costs can be reduced, retirees can free up more funds to allocate towards an emergency fund or long-term care insurance costs. Additionally, retirees can consider downsizing their home or relocating to a less expensive area to reduce living expenses and potentially free up additional funds for savings.

Don't forget to take advantage of these money-saving schemes for seniors to keep outgoings down.

Overall, planning for unexpected expenses in retirement is critical for maintaining financial stability and ensuring that retirees can maintain their desired standard of living throughout retirement.

The benefits of delaying retirement

Delaying retirement in the UK can offer several potential benefits, including increased retirement savings and a longer period of earning potential to make money go further. This can help to ensure a more comfortable retirement and potentially reduce the risk of running out of money later in life. In the UK, the state pension age is gradually increasing, with plans to reach 68 by 2037. Delaying retirement can help to bridge the gap between retirement and when the state pension kicks in, allowing for a more stable income during this period.

Continuing to work can also offer other benefits, such as social connections and mental stimulation, which can be particularly important for older adults. Working part-time or taking on a new job that offers a more flexible schedule can allow retirees to enjoy these benefits while also having time for other activities and hobbies.

In addition, delaying retirement can provide more time to plan and save for retirement. This can include taking advantage of employer contributions to workplace pensions or contributing to personal pension plans. It can also provide more time to pay off debt and save for unexpected expenses, which can be particularly important during retirement.

Tips for increasing retirement savings

There are several ways to increase retirement savings. Reducing unnecessary expenses and redirecting those funds towards retirement savings is one option. Another option is to take advantage of employer matching contributions, which can help to maximise the retirement fund. Additionally, considering higher-risk investments, such as stocks or mutual funds, can offer the potential for higher returns over time.

Having a side hustle can also be a great way to increase retirement savings. A side hustle is a job or business that someone does in addition to their primary source of income. This can include freelance work, selling goods or services online, or even starting a small business.

Side hustles can provide an additional stream of income that can be directed towards retirement savings. This can be especially beneficial for those who may not have a high-paying job or who want to accelerate their retirement savings and save more.

When considering a side hustle, it's important to choose something that aligns with one's skills and interests. This can make the work more enjoyable and increase the likelihood of success. It's also important to keep in mind any tax implications and to track income and expenses carefully.

Some popular side hustles in the UK include making money online, tutoring, pet-sitting, completing online surveys, and selling handmade goods online. With the rise of the gig economy, there are also many opportunities to work for ride-sharing or food delivery services.

The role of financial advisors in retirement planning

Financial advisors play a crucial role in retirement and financial planning for seniors. With their expertise, they can help individuals make informed decisions about their finances, identify their retirement goals, advise on how to safeguard their financial assets and develop a personalised retirement plan. However, it is important to find a trustworthy advisor who will prioritise your needs and goals.

To find a trustworthy advisor, it is recommended to check their credentials, such as certifications and licenses, and to understand their fee structure. It is also important to read reviews from other clients and ensure that the advisor has experience in retirement planning.

Once a trustworthy advisor is found, they can provide valuable guidance in assessing risk tolerance and identifying suitable investment options. They can also help individuals make the most of their retirement savings, including taking advantage of tax-advantaged retirement accounts and employer-sponsored plans.

Final word on why you shouldn't rely on the state pension for retirement money

If you're planning to make a financial resolution this year then I strongly suggest you have a plan in place for your retirement and don't put off saving or investing.  Relying solely on the state pension is not enough to ensure a comfortable retirement. It is important to start saving for retirement as early as possible, and to consider a range of options such as pensions, property investment, cash savings, and company share schemes. Seeking the guidance of a financial advisor can also be helpful in creating a retirement plan and exploring different investment options.

Here are some other ways to save for retirement aside from the state pension:

  • Invest in property
  • Cash savings
  • Company share schemes (SAYE)
  • ISA accounts
  • Retirement LISA
  • Keep working
  • Delay retirement
  • Consider higher-risk investments
  • Reduce unnecessary expenses
  • Take advantage of employer matching contributions
  • Plan for unexpected expenses in retirement

By taking steps to build a personal retirement fund and preparing for unexpected expenses, individuals can increase their chances of achieving financial freedom in their golden years. Start planning now to ensure a secure and comfortable retirement.

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