Finding a life partner will put you on the path to a richer retirement, a new study claims.
A joint approach to saving, two sets of state and private pensions and shared living costs will improve your prospects of a comfortable old age.
Single people therefore need to save a lot harder to achieve the same lifestyle, and lean more on private savings because they only have one state pension.
State pension is due to rise from around £12,000 to £12,550 a year from this April, if you qualify for the full amount with 35 years on your National Insurance record.
Meanwhile, couples should bear in mind that after one of them dies the surviving partner will have to cope financially on their own, warns retirement firm Just Group.
It analysed the income benchmarks for a basic, moderate and comfortable lifestyle devised by industry group Pensions UK, and worked out how much extra a single person would need to save.
Finding a life partner: A joint approach to saving, two sets of state and private pensions and shared living costs will improve your finances in old age
How big an income do you need in retirement?
The Pensions UK measure finds the minimum a single person needs to get by is £13,400 a year and £21,600 for a couple.
A moderate lifestyle which covers the essentials plus some splashing out on food and entertainment, trips abroad and running a car, requires £31,700 if you are single and £43,900 if you will be living on a joint income.
You should aim for £43,900 and £60,600, respectively, for an affluent lifestyle.
However, these headline targets don’t include income tax, housing costs if you are still paying a mortgage or rent, and care costs in later life.
How much extra income do single people need?
For a single pensioner to achieve the minimum living standard of £13,400 a year, Just Group says they would need to find £852 a year extra income after tax on top of the full state pension.
Two state pensions, providing £25,095 a year, would more than cover a couple’s essential requirements and give them an extra £3,495 to spend.
For a moderate lifestyle, a single person needs to save enough to generate £19,152 in income over and above their state pension, while a couple only needs to find £18,804 between them, according to Just’s calculations.
If you are aiming for a more prosperous old age, a single person needs an income of £31,352 plus a state pension, and a couple should target a joint £35,504, the firm found.
How do you generate an income in old age
State pensions and final salary pensions bring in a guaranteed income until you die.
You can also use a pension fund to buy an annuity for a similarly safe income.
If you opt against an annuity and choose to leave your pension invested and draw from your pot as and when you need it, you may not need to save quite as much by retirement age.
This is because, if you invest wisely, your fund can continue to grow during retirement, although there is a risk of running out of money if financial markets fall or you spend beyond your means.
> How to turn your pension into an income at retirement
> How to invest your pension and live on the income
Tips for single people and couples saving for old age
‘The message in the figures is that a full state pension goes a long way to helping people achieve the minimum income needed in retirement, but after that people are on their own,’ says Emma Walker, director at Just.
‘Couples can share costs that singles are forced to pay on their own. But it is important to remember that when one person in a couple dies, the remaining partner becomes single and will have to foot all the bills for themselves.’
Walker says that because most people aspire to more than the minimum standard of living, the figures above reinforce the importance of building up some private pension savings or other investments and using them wisely when you reach retirement.
Small pension pots can make the difference between a frugal life and enjoying a few treats, she adds.
As for how couples can help each other save for later life, Hargreaves Lansdown’s head of retirement analysis Helen Morrissey says: ‘Contributions to your loved one’s pension have the time to grow and could have a meaningful impact on their retirement prospects.
‘You can contribute up to £2,880 to the pension of a non-working partner and they will receive tax relief from the government which will top it up to £3,600.
‘It’s a little-known rule – research we did last year showed only around one-third of people know you can contribute to someone else’s pension – but it can have a big impact.’
She adds: ‘You can contribute to their pension even if they are still working. You can contribute up to whichever is the lowest of their annual earnings or £60,000 and still benefit from tax relief.
‘So, if your partner has a bit of headroom in their allowance and you have some extra money it can make sense to boost their contribution ahead of tax year end.’
However, there are some snags to boosting a partner’s pension pot – particularly regarding tax.
Read our guide to taking full advantage of pensions as a couple, to gain all the perks available and avoid the pitfalls.
SIPPS: INVEST TO BUILD YOUR PENSION
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