Are you one of the 27% of people soon to retire, who will rely on the basic state pension as their main means of support?
If so, then you could be receiving state payments that currently stand at less than £5,000 a year.
Even despite government plans that could boost the basic state pension by up to £11 per week, experts are still predicting that a considerable section of the elderly population will be unable to sustain an acceptable standard of living.
The buying power of the basic state pension in the UK is a fraction of what it was, due to changes in legislation that have gradually depleted its value over the last 30 years.
These changes have reduced basic state pension benefits to current levels of just £95.25 per week for an individual – that is, just £4,953 per year.
If you have no additional savings, this would be topped up by pension credits to £130, or to £198.45 for a couple. For those with savings, however, pension credits will probably be unavailable, as these are means-tested pension benefits aimed at those with no additional income.
In the 1970s, the basic state pension was linked to earnings, and was able to hold its own against inflation. However, that changed in 1979, when the government linked the pension to prices, using the Retail Price Index.
As retail prices generally rise more slowly than earnings, the long-term effect of this has been the gradual decline to today’s low levels of basic state pension.
On a positive note, the current government plan to restore the link to earnings may, as mentioned, add up to £11 per week to the value of the basic state pension.
However, this would still leave pensioners well below the poverty line, as defined by central European legislators in Brussels.
Basic State Pension ‘below poverty line’
Brussels’ definition of the ‘poverty line’ is 60% of the average national wage.
The average national wage in the UK is currently £316 per week, which implies that any pensioner living on less £190 per week is officially living in poverty.
Even with the pension credits top-up to £130 per week, those dependent on the Basic State Pension are still officially impoverished.
**Source: Prudential
***Source: Central EU statistics agency Eurostat
