Retirement in depth

Pensions - getting by on £50 a week

November 2007

This is why the government and other organisations are hammering home the message about saving for retirement and starting to do so early on in life to ensure a comfortable standard of living during the twilight years.

But while some are able to save regular amounts from their salary into a company pension or a personal scheme, those on lower incomes who have little left after mortgage payments, bills and other expenses may not be able to do so.

As a result they may be forced to rely on the state pension to support them in retirement, and since the value of the state pension has been slowly eroded over the years they could find it extremely difficult to make ends meet.

Currently the full basic state pension is £87.30 a week for a single person and £139.60 for a couple. However your individual circumstances will determine how much you get.

The amount you receive depends on the amount of National Insurance (NI) contributions you have made during your working life, so you may receive less if, for example, you have taken time out from work to take care for children or elderly relatives.

Figures seen by Fool.co.uk show that around 10 per cent of men and 50 per cent of women currently receive less than the full basic state pension because they have not made enough NI contributions during their lifetime.

This is why the issue of pensioner poverty is particularly relevant to women as women typically clock up less contributions than men if they have had children or taken on the role of carer and could find themselves living on as little as £50 a week.

According to Age Concern many older people are being forced to return to work after they have retired because they find that their retirement income is not nearly as much as they thought it would be and are finding it difficult to cope financially.

Helen Spinney, a spokesperson for the charity, said: "We know that a lot of people reach retirement and are very shocked at how small their income is. Some people feel that they have to work over the state pension age because their income really isn't enough."

But Age Concern says a large part of the problem is that pensioners are not claiming the means tested benefits to which they are entitled. For example around a third of older people entitled to pension credit are not claiming it, despite the fact that it could top up their weekly income to a guaranteed minimum of £119.05 for an individual and £181.70 for a couple.

"There is over £4 billion in money benefits left unclaimed by older people every year, and 1.8 million older people live in poverty," said Spinney. "So there is a huge problem around older people not claiming the benefits they're entitled to. Of those benefits, pension credit is the main one.

"That's for a number of reasons," she explained. "Some people may not have heard anything about it, some people may have heard about it but assume they're not entitled to the extra money.

"Other people may simply feel embarrassed about claiming. So, there are a whole number of reasons why people don't claim the benefits, and certainly lack of information is one of them."

And it is not just pension credit that is going unclaimed. Many pensioners do not realise that they may also be eligible for other benefits such as council tax benefit, housing benefit and attendance allowance which could boost their income significantly.

Spinney explained that council tax benefit is the benefit that is least claimed by older people despite the huge increases in council tax in recent years, particularly in comparison to the basic state pension.

"Working it out is a fairly complicated process but a lot of older people could be entitled to 100 per cent off their council tax bill and don't realise that," she stressed. "Other people could be entitled to 50 per cent off, 25 per cent off."

She said pensioners should also check to find out whether they are entitled to housing benefit and attendance allowance as even small amounts could make a big difference.

Other benefits include winter fuel payment, which is paid every year over the winter months to help pensioners with their heating costs. However since the amount paid does not change according to how cold it gets the money could be used for something else if there is a warmer than usual winter.

Some local authorities also help with the cost of services such as public transport, which can ease the financial burden for older people by taking transport costs out of the equation and allowing them to get out and about more.

Age Concern says it has spoken to many older people who have found themselves "literally hundreds of pounds better off" each month simply by claiming their benefits.

"Finding out what benefits you are entitled to would be a key piece of advice for any older person who was finding it difficult to make ends meet," said Spinney.