State Pension Will Surely Be Shut Down – Act Now!

In this post we need talk about the impending catastrophe that is the state pension. We’ve said it before and we’ll say it again, don’t expect the state pension to be around when you retire. Even if the state pension is not completely scrapped it will be heavily cut by at least one of many methods available to the government. It’s practically a certainty!

We’d assume that most people who watch our videos have some money invested, even if it’s just a little. Well, you guys should be especially concerned about future changes to the state pension because its people with money who will be most in the firing line.

We don’t think the impending retirement disaster gets anywhere near the amount of coverage that it needs. Our guess is that the media don’t mention it because it’s a story that’s been slowly growing for a generation, and it always seems like tomorrow’s problem. But if the media don’t mention it the government won’t feel the pressure to act.

The whole country is always preoccupied with more pressing issues – a few years ago it was Brexit, then it was Covid, and right now it’s war and rising inflation and the cost of living. How much longer can we kick the can down the road?

Today we’re looking at the importance of the state pension, why it will almost certainly be scrapped or changed for the worse in some way, what will likely happen in our view, and how you can prepare for the inevitable. Now, let’s check it out…

The video version of this post was sponsored by Penfold. Penfold is a fully digital pension service and offers four investment plans, with their most popular being the Lifetime plan, which automatically adjusts the risk level of your investments over time as you approach retirement. Open an account with penfold via the link found on the MU Offers page and you’ll get a £25 bonus added to your account. T&Cs apply, and as with all investments your capital is at risk.

Alternatively Watch The YouTube Video > > >

Why The State Pension Matters

From April 2022 the state pension will be around £185 a week, which is £9,628 a year, or about £802 a month.

According to Which? research two people would spend £26,000 a year to achieve a comfortable retirement, which buys you some lower-end luxuries, such as European holidays, hobbies and eating out. A couple would need £41,000 a year if you included luxuries such as long-haul trips and a new car every five years.

We’re going to largely ignore what Which are saying is needed for an Essential lifestyle (£18,000), which allows no luxuries whatsoever, as merely surviving is no way to live. We imagine nobody watching our videos would be content with so little. But it’s interesting to note that a couple could theoretically survive with just 2 state pensions and no savings of their own. According to research by, one in six people over-55 have no pension savings whatsoever, so the state pension is a lifeline to them.

Running with the £26,000 figure for a comfortable retirement would likely require an investment pot of £650,000 by our calculations. Let’s be frank, most ordinary people have no chance of ever achieving this.

But if we take into account the 2 state pensions that a couple would receive that means they only need to fund £6,800 a year from their own investments.  This lowers their required investment pot to just £170,000, which is much more achievable, and means the state pension for a couple is effectively the equivalent of a £480,000 investment portfolio for the income it provides.

Essentially when combined with private pensions the state pension has the power to lift people out of poverty and into relative comfort. The state pension is not just a safety blanket – it’s transformational, turning a basic retirement funded by private pensions alone into a comparatively lavish one.

Going forwards people are likely to be even more dependent on the state pension than what these numbers suggest. The research carried out by Which was conducted by speaking to existing retirees but based on generational changes we’re predicting that peoples’ finances on average will be far worse than the existing crop of retirees.

For a start, if you are retired and own your own home outright, then you don’t need to worry about paying any rent, but can this achievement be assumed to be replicated for those still of working age today? Housing costs make up a huge portion of your budget, so all those numbers we just discussed should be hiked upwards for those who won’t own their home.

This is super important because there are decreasing numbers of young people who own homes. In 1991, 67% of the 25 to 34 age group were homeowners. By 2011, this had declined to just 43%. More recent data showed that people in their mid-30s to mid-40s are three times more likely to rent than 20 years ago.

These trends are likely to have a double impact: more people will be forced to pay rent throughout retirement, perhaps requiring an extra 10 grand a year of pension income to reach a comfortable lifestyle; and they are likely to save less during their working years as rent payments always rise over time. The inevitable result of which is them needing the state to bail them out in their old age.

Why You Can’t Rely On The State Pension

The age you receive the state pension depends on when you were born; the age will rise to 67 by 2028, and according to the government’s own prediction it should rise to 68 by the mid-2030s, and 69 by the late 2040s. The age is already being slowly increased, so it seems a given that we should expect further rises.

The current cost of providing the state pension is greater than the money being collected in national insurance contributions, and according to FTAdviser the difference is being funded by Treasury grants that are limited to 17% of the year’s expenditure, and even with these payments the Government Actuary’s Department estimates that the UK’s state pension fund could run dry by 2033.

The cost of the state pension is now at £100bn a year and is rising rapidly year-in, year-out. The country is underfunded in so many areas such as the NHS and policing (and everything else come to think about it) that you have to wonder how the government can continue paying out such an expensive benefit.

With rising tensions and a clear threat from a changing world order it’s very important that we spend more money on our military. Not doing so would be dangerous and irresponsible. Cuts elsewhere will need to be made.

The state pension is effectively a gigantic pyramid scheme. When you pay national insurance, this isn’t put aside for your future, no, no, no. This is spent immediately on existing pensioners. Your future state pension relies on future generations paying for you. With the current setup you’ll likely be relying on kids who haven’t even been born yet to toil in factories and office buildings to pay for your retirement with their hard effort. We’ve never heard of a pyramid scheme that can continue indefinitely. Sooner or later the whole thing comes crashing down.

There are 1,000 contributing workers supporting every 310 claiming pensioners. By 2036, this is expected to rise to 1,000 workers for every 360 pensioners. Why do you think the government does everything in its power to keep the population growing? They proclaim to desire to reduce immigration but ensure they do nothing to prevent it, or else risk toppling the pensions pyramid.

The situation is made worse by the fact that the money paid to pensioners increases by the triple lock, whereas national insurance contributions increase in line with earnings. Following a period of low wage increases and low inflation, the pension cost will climb and become even more excessive. One of the guarantees of the triple lock is that pensions increase by an arbitrary minimum of 2.5%.

Pension Replacement Rates

It’s commonly claimed that the UK has the worst state pension among developed countries, based on data published by the OECD as seen in this chart. UK pensioners who were average earners can expect just 28% of their annual career earnings from the state pension. Interestingly, many countries like Austria, Portugal, and Turkey can expect to replace almost all of their job earnings with their state pension.

The UK launched the auto enrolment scheme some years back. Many people might consider this to be a top-up to the state pension, but we think it’s been brought in to lay the groundwork for a future government to finally slash the state pension by claiming that these people don’t need it.

The suspension of the triple lock during 2022 is another incremental step towards the government’s end goal. Once seen as untouchable, the triple lock was temporarily removed, citing a “statistical anomaly” caused by Covid. Sadly, this demonstrates that even an ironclad guarantee like the pension triple lock can be broken! And when it has been done once it acts as a precedent in future for further cuts.

And finally, and perhaps one issue we have never even considered until recently is the possibility of a total collapse of the country. A few weeks ago, a situation like this might have been considered so unlikely that it was nothing less than sensationalist panic, but the Ukraine crisis is a terrible reminder that we can’t take anything for granted.

The humanitarian crisis created by Russia’s invasion of Ukraine has caused millions of people to flee. One consequence of this is that these people are likely walking away from any state pension they might have earned. We can’t imagine any Russian puppet state will honour any pensions that were being accrued, and likewise should Ukraine repel the invaders their country will be in such a dire state it will take decades to recover.

We’re not saying this exact scenario will happen to the UK but it’s worth taking stock of what shocking events can happen and how severe the consequences can be.

What Will Likely Happen To The State Pension?

Avoiding any catastrophic events, one option is some sort of means testing that takes effect in the future. Considering that old people vote, and young people don’t it seems plausible that the government will eventually draw a line and say there will be no further automatic entitlement to the state pension. Past entitlements would likely be honoured as otherwise there would be riots in the streets – and the nursing homes.

Young people, say those under 25, will be less affected by this run-off because they should have a lifetime of saving into the auto enrolment scheme. Somebody who is auto enrolled into a workplace pension earning £30k for 40 years with typical investment growth might end up with a pension pot of £235,000 in today’s value of money and a couple could have double this, approximately replacing the purchasing power of the state pension.

A less decisive option they will continue to take is to keep gradually increasing the age you can claim the state pension. In theory this keeps people working longer and therefore continuing to pay into the system, and simultaneously reduces the number of people taking from the system.

They might also change the rules so that you need more NI qualifying years to qualify for the full state pension. Currently you need to have been paying NI for 35 years, but this was only recently changed from 30 years. This could be increased in steps to, say, 50 years.

Think about this, you may still choose to retire at 55 because you have the private retirement savings to do so, but you would be sacrificing your entitlement to the full state pension by not working the full 50 years.

But questions need to be asked about how feasible increasing the age you can claim is. Many jobs cannot have an average 65-year-old doing them. To be a bricklayer you need to be fit and strong, so it’s clearly not a suitable job for Albert and his bad back.

What You Can Do It About It

Relying on the government (or anyone for that matter) is a recipe for disaster. Nobody will care about your wellbeing as much as you do. Our suggestion for you is to pay the maximum that your employer will match into your workplace pension. Because you never see this money in your bank account you get used to living on your take home pay, which is one reason why saving for retirement like this is so effective.

Many workplace pensions will only match the pathetic statutory minimum, so you should also pay more into a private pension and/or a Stocks and Shares ISA.

A pension has age access restrictions, which on the face of it may seem limiting but for ordinary people who might be tempted to spend this money this restriction can be a blessing in disguise. Discussing the merits of ISAs vs Pensions would be an entire video/post in itself, but we discuss how best to use both accounts in tandem here to efficiently save for retirement.

How much should you pay in total to retirement savings? There’s no better way to estimate this than to play with an online retirement calculator. This one will tell you how many years you have until you can retire, and you can change all sorts of variables such as investment returns, your age, your earnings and expenses, and your withdrawal rate.

The rule of thumb has always been to save 10% of your earnings for your entire life but we feel this is too low. You should be looking to put at least 15% away. And if you’re young the more you can invest now, you might be able to take the foot of the gas later. We can’t stress how liberating it is knowing your future is already taken care of.

Barring any disasters and assuming investment growth will be consistent with long-term historical returns, both Ben and I (MU Co-founders) have already achieved investment pots that will pay for our retirements, just through diligent monthly investing during our 20’s and early 30s. Pretty awesome!

What retirement investment plans have you made? And what do you think the fate of the state pension will be? Join the conversation in the comments below.

Written by Andy


Featured image credit:

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

How To Retire With A £1 Million Pension At Age 50

In previous articles we’ve looked at retiring really young, and there were two themes that were evident:

1) You had to save and invest an enormous amount of money; and

2) Pensions were of little use because they cannot be accessed until your mid to late 50s.

However, if you are willing to retire a little later, such as in your 50s, pensions are an incredibly powerful tool for building up a huge investment pot that can provide you an income for the rest of your life. What’s more, if you’re aware of smart strategies – the kind that we’ll introduce you to today – then you can in effect access your pension pot early.

In this post we’re looking at how you can retire with a £1 million pension at age 50, in today’s value of money. We’ll cover how much you need to save, the benefits of starting as early as possible, some strategies at your disposal, and more. Let’s check it out…

If you’re going to do the following strategy properly, at some point you’re likely going to need to use a SIPP. We’ve compared them all and handpicked our favourites. Check out the Best SIPPs page for guidance.

Alternatively Watch The YouTube Video > > >

Do You Really Need A £1 Million Pension?

How much retirement pot you really need is dictated by your desired income. The more income you want, the bigger the pot required! spoke to thousands of their members and they published some really interesting figures on how much money you need in retirement, whether you’re living alone or in a couple.

Couples would need just £18,000 for the essentials, £26,000 for a comfortable income and £41,000 for a luxury lifestyle. The comfortable lifestyle covers all the basic areas of expenditure and some luxuries, such as European holidays, hobbies and eating out. The luxury lifestyle includes all this plus more, such as long-haul trips and a new car every five years.

If you don’t mind popping your clogs and having nothing left to leave to your family, friends or favourite charity, then you’ll be able to drawdown on that pension much faster than someone who doesn’t want to deplete the pension pot. If your goal is to retire at 50, as per the title of this article, you might want to consider trying to maintain the value of your pension for as long as possible.

A good rule of thumb is to use the 4% safe withdrawal rate. We won’t cover it today because we’ve covered it a lot previously but in theory you would need a pension pot of £1,025,000 to achieve that £41,000 per year luxury lifestyle for a couple.

The pension lifetime allowance for most people is £1,073,100 in the tax year 2021/22. Up until the allowance limit, pensions are a very tax-efficient way to save for retirement. Past this mark, they start to become inefficient as the government start hitting you with hefty tax charges.

If you’re hoping to hit that £1m pension and you’re in a couple, you should definitely consider splitting it across the pair of you so you’re less likely to fall foul of the lifetime allowance from further growth, but at the same time you also need to consider the most tax efficient way to save.

How Much Do You Need To Save To Get To The £1 Million Mark?

For all the following figures, we’ve used a 5% real rate of return. We always assume that market returns will be 8% based on history and then deduct 3% for estimated annual inflation and investment fees.

Let’s first look at what you need to save, assuming that you’re going to save into a pension until you hit state retirement age at 68.

The amount you need to save per month depends on your age. As you can see in this chart the younger you are your required savings per month are far lower than if you start later in life. If you’re 25 you will only need to save today’s equivalent of £555 per month. But if you start at 40 you will need to save almost triple at £1,359.

We’d say that for anyone under 30 who wants to be a millionaire it is absolutely within their reach. 30-year-olds only need to save £737 per month. In fact, we’d even say that if you’re 40 you can still quite easily become a pension millionaire despite the seemingly higher savings rates required.

You can access your private pension before the state pension age, so let’s recalculate as if you want to access as early as possible. The current minimum pension age for taking benefits from a private pension is age 55. This is expected to increase over time. For this example, we’ll go with 58, which is probably most likely for those currently in their 30s and younger.

The required savings per month is noticeably higher than when the target date was 68. We have 10 years less to contribute and 10 years less of compounding returns. The later you start the harder it gets, like before, but every year later is so much harder. This is based on 58. Doing it by 50 is probably going to be a Herculean task. Let’s take a look…

This chart looks different to the other charts because you can’t actually access the money in the pension at 50. So, although you will stop contributing at 50, the pension pot will continue to grow until 58, hence why all the lines come together at 50.

What might surprise you is that the savings per month for the younger ages are not that different to those required for retiring at 58. At that point growth is far more important for compounding than the relatively low contributions.

Let’s look at all the figures together to more easily see how they compare. The later you start investing would make getting to £1m a very difficult task indeed. But for those who are currently 30, retiring by 50 looks very doable as you only need to save £1,625 per month.

I imagine that some of you are screaming expletives at us right now because unless you’re on the younger end of that scale some of those numbers are beginning to appear ridiculous. Well let’s take a look at how those numbers can be drastically cut down.

Taking An Axe To The Required Savings

All the numbers we’ve seen so far are the total contributions. The beauty of pensions is that thankfully you don’t need to pay all this yourself. You will get employer contributions and tax-relief, which can be enormous.

There’s also a smart hack that some companies use to avoid National Insurance (NI) called ‘salary sacrifice’, which saves you a bucket load of money. You can then make further contributions to your pension with the tax saved.

Better still, some companies who operate a salary sacrifice scheme will also pass on their employers NI savings of 13.8% to your pension pot too.

All in, this will be an effective boost of 83.8% for higher-rate taxpayers on top of whatever you put in. For lower-rate taxpayers it works out at a still impressive 53.8%.

If that wasn’t enough, if you have outstanding student debt, using salary sacrifice to increase pension contributions lowers the amount you need to pay back each month. This would further increase those figures to 98.8% for higher-rate taxpayers and 65.1% for lower-rate taxpayers.

For the purpose of the rest of the article we’ll assume you have no student debt and so don’t benefit from avoiding that.

Also, some companies don’t offer a salary sacrifice scheme simply because they’ve never heard of it. There’s no harm in asking and perhaps educating them why they should introduce salary sacrifice.

How Much Do You Really Need To Save To Get To The £1 Million Mark?

This is what both a higher-rate taxpayer and their employer will contribute to their pension, plus the tax relief they will receive, in order to hit that £1m pension. In this first example shown we’ve assumed a salary of £75,000 and 10% matched employer contributions.

Most companies will pay less than 10% but there are also many who do respect their employees and pay this or even more. If you’re serious about building a £1m pension, then it might be in your interest to seek a good employer out.

That 10% matched limit is why the company contributions are frozen at £625 for some of the ages. It means that you will have to pay in more yourself to compensate for lower company contributions. Hence at 35, to retire at 50, you will pay in £1,014 per month but only receive £625 from your company. Of course, if you earn more or have higher matched contributions your company will pay more than this, meaning you yourself can pay less.

Let’s look at what a lower-rate taxpayer earning £45,000 would have to save. As you can see the lower salary means the employer contributions are capped at £375 per month causing you to have to contribute more yourself. At 30 you would only have to save £812 a month to retire at 50 with a pot that would soon grow to £1m. For those age 40, the required monthly savings are a tall order, requiring £2,533 per month. This can be slashed for those willing to work until 58 and later.

How To Access Your Pension at 50?

As we mentioned earlier you cannot access a private pension until probably 58 in normal circumstances.

Our first lifehack is to take out debt at your chosen retirement age of 50, most likely mortgage debt as it’s very cheap, to fund your lifestyle until you reach the pension age of 58. When you can finally access the pension, you can take a 25% tax-free lump sum, which you could use to pay down the debt should you wish. If you did manage to build a £1m pension that’s a tax-free lump sum of £250,000.

If you had remortgaged your property and extracted £250,000 at age 50, that would give you £31,250 each year to live on. This could be supplemented with any other savings or investments that you hold outside of a pension, such as an ISA.

Our second lifehack also involves using debt smartly, but in the early years of pension building.

The irony of investing is that it’s far preferable to inject lots of money in the early years rather than later, in order to produce better compounding. But inevitably, your salary will be lower in the early years and your pension pot will be small, meaning it’s only in the later years that your pot grows to a size that the compounding starts making an impact.

Why not flip that on its head? By taking on a large amount of low interest debt in your twenties or thirties and investing it into your pension, you can then watch as your pension snowballs over the years from strong compounding returns.

Preferably the debt will be long term, cheap mortgage borrowings like the first hack, so you can defer paying it back for 2 or 3 decades, as before.

Other Key Tips

#1 – Consolidate Old Pensions

Most people will have several jobs or more during their lifetime and accumulate multiple pensions. This not only makes them a pain in the butt to manage but also many of them will be expensive and underperforming.

In many cases it’s worth consolidating them into one easy to manage, low-cost SIPP. Before doing this do your research and perhaps speak to a financial advisor if you’re unsure.

#2 – Partial Transfer Your Existing Workplace Pension

Following on from the last point, it might be worthwhile partially transferring your existing workplace pension into a SIPP if your existing pension is costly or badly run. Many workplace pensions have poor investment options and are likely to not be invested according to your risk profile and goals.

We’re suggesting a partial transfer because otherwise your employer will likely stop contributing, which you want to avoid. Before doing a partial transfer make sure your existing pension provider allows this.

#3 – Ramp Up The Risk

Generally, the higher the risk, the higher the potential reward. To build a £1m pension is no mean feat and will require great returns. In this video we think we’ve been quite conservative using just 5% real returns, and if you increase risk, we think there is a good possibility that you will get returns exceeding this.

#4 – Use Your Spouse’s Pension Too

If you’re fortunate enough to have a spouse who has a good workplace pension too, then take full advantage of this. You’ll get even more employer contributions and will now have two salaries to make quick work of those required savings rates.

Also, on your own you will likely eventually breach your pension lifetime allowance if you have a pot already worth £1m at age 58 as it will continue to grow. If that was spread across two people’s allowances, that is much better.

#5 – Don’t Neglect Your ISA

Pensions are incredible, but Stocks & Shares ISAs are also extremely powerful in their own right. Together they can be used to balance tax efficiency and accessibility. Check out this article and video next to learn how they can be strategically used together to retire early.

Were you surprised by just how little of your own money is required to become a pension millionaire? What’s your retirement strategy? Join the conversation in the comments below.

Written by Andy


Featured image credit:  Rus Limon/

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday: