Flat rate state pension 'equivalent to £130,000 private pot'
Monday 21st January 2013
The Government's new flat-rate State Pension of £144-a-week would be equivalent to a private pension pot of up to £130,000 at retirement for a single life annuity without a guarantee, analysis from Prudential shows.
Detailed plans for the overhaul of the State Pension system have been outlined in a White Paper, with the new payment equivalent to an income of £7488-a-year in today's money, expected to take effect from April 2017.
Prudential's analysis shows a 65-year-old today would need a £130,000 fund to generate the same £144 a week assuming they secured the highest possible single life annuity without a guarantee.
The £144-a-week, which will replace all existing payments, will increase in line with inflation between now and April 2017, but will only be available to new pensioners, with existing pensioners and those who qualify before then continuing to be paid under the existing system.
Existing pensioners will still need to rely on the £107.45-a-week State Pension which can be topped up to £142.70 a week with pension credit and the State Second Pension.
Vince Smith-Hughes, retirement income expert at Prudential, said: "The flat-rate State Pension reform will be the biggest overhaul of the system for decades and is a very valuable step forward.
"Private pension savers need funds of up to £130,000 to match the flat-rate State Pension but they now know that any savings will benefit them and will not affect benefits.
"The new system improves the safety net for pensioners in the UK but should only ever be regarded as part of an overall retirement plan and the real income shock for many will come when the gap between their current earnings and the State Pension becomes apparent.
"Maintaining your standard of living in retirement means saving as much as possible as early as possible and joining a company pension scheme where feasible."
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