It would cost pensioners £250,000 to buy a lifetime guaranteed income to replace the current state pension, new calculations from Aegon have revealed, amid speculation the state provision could become means tested.
The current full new state pension is £221.30 a week.
Aegon said that millions of pensioners reliant on their state pension will be “particularly anxious” over the Labour government’s recent warning of tough times ahead, amid growing speculation that the state pension could be means tested in future.
Steven Cameron, pensions director at Aegon, said: “For millions of people, the state pension is the bedrock of their retirement plans. While the new state pension won’t provide a life of luxury, to buy a lifetime guaranteed income to match this from state pension age would cost a staggering £250,000.
“Put another way, unless you’ve built up a pot of over a quarter of a million pounds in your private or workplace pensions, the state pension will make up the majority of your retirement income. So it’s not surprising that people are very reliant on the state pension to support their retirement living standards.”
According to Aegon’s own research, 95% of people expect to rely on the state pension to varying degrees. This was before an estimated 10 million people lost their winter fuel allowance.
“The fact is that the state pension is worth a huge amount of money and any suggestion that it might be means tested so reduced or even removed for those with other retirement income above a given level would send shockwaves through the pensioner community, impacting hugely on living standards for all but the truly wealthiest of wealthy,” Cameron said.
The pension provider said that pensioners could buy an annuity as a means to secure a guaranteed income, with annuity rates more attractive than they were a few years ago. However, with expectations that interest rates are likely to fall back to lower levels in the coming years, the cost will likely rise, making the state pension even more valuable.
“While many individuals now leave their pension pot invested and draw down an income, you’d still need a similar sum to be able to draw an amount equal to the state pension without taking too much risk that your money might run out before you do,” Cameron added.
Main image: sandro-katalina-k1bO_VTiZSs-unsplas
