If you're pinning your retirement hopes on the UK state pension, you may be in for a shock. Here's what to expect from the state pension in 2016

What the state pension is like now

The UK state pension is one of the worst in Europe, leaving 1.7 million elderly Britons below the breadline, according to new research from the International Longevity Centre. Shockingly, it is worth less than one-third of the average wage. So unless you have a workplace pension or ISA savings to fall back on, you face a sharp drop in living standards. The basic state pension is worth a meagre £113.10 a week, equivalent to just £5,881 a year. Couples get £226.20, double that amount.You won't even get that unless you have made the full 30 years of qualifying National Insurance (NI) contributions during your lifetime.Fortunately, there is a safety net for those who fall short, in the shape of a means-tested state benefit called pension credit. This tops up the single pensioner's income to at least £148.35 a week, or £226.50 for couples. Yet one in three eligible pensioners fails to claim it.

 

What happens in April 2016?

If you reach state retirement age after April 2016, you will retire under the new flat-rate state pension. That is likely to be worth a marginally more generous £155 a week when it is introduced. Again, it isn't riches. The new system will apply to women born after 5 April 1953 and men born after 5 April 1951. Everybody else will continue to get their state pension under the old rules.

 

What does that mean for you?

To get the full amount, however, you need 35 years of qualifying National Insurance contributions or credits, five years more than before. If you have between 10 years and 34 years, you'll get a proportion of the pension. If you have less than 10 years, you won't get anything at all. The pension credit safety net will remain, but the savings credit, a reward for people on a modest income who have saved for retirement, will be scrapped. The flat-rate state pension will boost incomes for many women, low earners and the self-employed, but it still isn't riches. To find out how much state pension you may get, call the Future Pension Centre on 0845 3000 168 or visit www.gov.uk/future-pension-centre.

 

What can you do to get more back?

If you're heading for a shortfall, you might want to make voluntary NI contributions to plug the gap. Currently, these cost £722.80 for each year you buy. Be warned, buying extra state pension could backfire for the poorest pensioners, who may lose access to means-tested state benefits such as housing benefit and pension credit. The state pension isn't enough to live on comfortably now, and sadly, that won't change after 2016. To really enjoy your retirement, you need to start saving under your own steam.

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