The State Pension is worth nearly £330,000 to today’s retirees

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  • Aegon Analysis of age related benefits shows the present value of funding them throughout life or for a realistic period for a new beneficiary.
  • The state pension is the most valuable benefit, as it would cost £327,000 to buy as an annuity for life at its full level of £168.80 per week.
  • The BBC’s proposal to end the free TV licence has attracted much attention. This would cost around £3,680 to buy as an annuity for life.

Age related benefits.JPG*Adult yearly London travelcard, zones 1-6
**Bus travel is free across Scotland so figure based on average city bus pass of around £700 plus allowance for some longer trips.
***Can be up to £300 depending on age and marital status.
****The BBC are set to restrict free licences to over-75s who claim the pension credit benefit from June 2020.

Aegon Analysis shows the relative monetary value of age related benefits

Plans announced by the BBC to limit free TV licences for over 75s to those claiming pension credit were met with huge objections, and not just amongst the over 75s. To shed light on the value of a range of age related benefits, pensions and investment company Aegon has analysed various benefits to illustrate the present value of funding them for the rest of the beneficiary’s life or over a realistic fixed period reflecting likely usage.

The analysis shows that the present value of the state pension at its full level of £168.80 per week is £327,000, significantly higher than any other age related benefit. So for someone to buy the full state pension for the rest of their life through an annuity, it would cost £327,000.

For those meeting the age eligibility criteria, free travel on some modes of public transport would also come at a high cost. In London, the present value of buying an annual travel card (zones 1-6), similar to the benefit of a 60+ Oystercard, for the next 15 years would come to just under £35,000. In comparison, buying bus passes for a Scottish city and other periodic trips across Scotland which are also free would cost around £14,000.

The winter fuel allowance for over 65s adds up to at least £4,250 over a lifetime for someone receiving the basic £100 a year, and considerably more for those entitled to a higher annual sum.

The free TV licence from age 75 comes in at the lowest value benefit, although at its current level of £154.50 per year, is still worth around £3,680 over a lifetime.

 

Steven Cameron, Pensions Director at Aegon, comments:

“It’s great news that on average, in the UK, we’re living longer. But we need to face up to the costs of those longer lives if we are to enjoy our later years to the full. Most people accept that the state through taxes should make sure our older generations have a basic entitlement to a core state pension. Recent increases in the starting age have aimed to make this affordable as we live longer and to avoid past mistakes, the Government needs to make sure any changes are communicated well in advance.

“Other benefits such as free travel, the winter fuel allowance and free TV licences can make a big difference to the standard of living of the millions on pensioners on fixed incomes and any suggestion of removing these or making them means tested are likely to create outcries, as we’ve seen with the BBC’s proposal.

“For many people, the benefits they receive from the state will make up a core part of their retirement income and lifestyle. However, those some way off retirement should think seriously about whether they are confident the state pension and other current entitlements will provide them with the lifestyle they aspire to in retirement. For most, the best and safest course of action will be to make additional personal provision, for example by saving through a workplace or personal pension. It can pay to get financial advice."

 

References

State Pension analysis: According to the Money Advice Service best buy tables, and using the average of the top 3 providers on 13 June 2019, a pension pot of £327,000 (rounded to the nearest £000) is required to create a weekly income of £168.60 for life, paid monthly in advance with the income starting on 6th July when an individual born 1st March 1954 will reach state pension age. We have assumed the individual is living in London (SE1 9GF) and in good health. We assume the income will increase in line with RPI. In practice, state pensions currently can increase faster than RPI because the triple lock is the highest of inflation, earnings growth or 2.5% each year.

Free Travel London analysis: According to the Money Advice Service best buy tables, using the top rate, a pot of £34,960 (rounded to the nearest £00) is required to create a yearly income of £2,568 for a fixed 15 year term, paid annually in advance starting on 14th June, Not adjusted for inflation. We have costed this over a 15 year period rather than throughout life, to reflect the likely lower usage at more advanced ages.

Free bus pass Scotland analysis: According to the Money Advice Service best buy tables, and using the top rate, a pot of £13,900 (rounded to the nearest £000) is required to create a yearly income of £1,000 for a fixed 15 year term, paid annually in advance with the income starting on 14th June. Not adjusted for inflation.  We have costed this over a 15 year period rather than throughout life, to reflect the likely lower usage at more advanced ages. The £1000 is based on a city bus pass of around £700 plus periodic additional bus trips that can be made across Scotland which are free to over 60s.

Winter Fuel payment analysis: Based on the Money Advice Service best buy tables, and using the top rate on 13 June 2019, a pot of £4,250 (rounded to the nearest £00) is required to create each £100 of yearly income, paid annually in advance with the income starting on 5th April when the individual is 65 years of age. We assume the individual is living in London (SE1 9GF) and in good health. Adjusted by RPI measure of inflation.

Free TV Licence Fee analysis: According to the Money Advice Service best buy tables, and using the top rate on 13 June 2019, a pot of £3,680 (rounded to the nearest £00) is required to create each £154.50 of yearly income for life, paid annually in advance with the income starting on 14th June when the individual is 75 years of age. We assume the individual is living in London (SE1 9GF) and in good health. Adjusted by RPI measure of inflation.

 

Notes to Editors

  • In the UK, Aegon offers retirement, workplace savings and protection solutions to well over three million customers and employs approximately 3,450 staff. More information: aegon.co.uk
  • As an international life insurance, pensions and asset management group based in The Hague, Aegon has businesses in over twenty five markets in the Americas, Europe and Asia. Aegon companies employ over 28,000 people and have millions of customers across the globe. Further information: aegon.com

*Figures correct as of January 2019

Aegon is a brand name of Scottish Equitable plc. Scottish Equitable plc, registered office: Edinburgh Park, Edinburgh EH12 9SE. Registered in Scotland (No. 144517). Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 165548. An Aegon company. www.aegon.co.uk                                                                        

© 2019 Aegon UK plc.