'Hidden horrors' for retirement planning could see you have to fork out extra £300 a month as state pension age rises

Couple worried at laptop

Healthy life expectancy sits at 63 years old for both men and women

Temi Laleye

By Temi Laleye

Published: 16/04/2024

- 11:37

Updated: 16/04/2024

- 14:15

State pension age is currently 66, however it is set to rise to 67 and then 68

Some people who fall ill and are unable to work before reaching retirement age could end up having to pay around £320 per month extra into their pension to cover the loss of not working.

Healthy life expectancy sits at 63 years old for both men and women – a full three years less than the current state pension age of 66, according to government data.

Those approaching retirement risk falling into a gap where people are too ill to keep working and too young to get a state pension, new research shows.

An expert has warned this can cause “hidden horrors for our retirement planning” as Britons will have to save more for retirement just in case they fall ill and can’t work on the lead up to their state pension age.

Figures from Hargreaves Lansdown show that a 40-year-old would need to save approximately £320 per month extra into their pension to give them a private pension payout equivalent to their state pension between the age of 63 and 68.

They would need around £120,000 to cover the cost of missing their state pension for the five years until they hit state pension age at 68.

Woman at laptop

Savers can benefit from pension tax relief


In the same way, a 50-year-old would need to save approximately £370 per month to give them a private pension payout equivalent to their state pension between 63 and 67.

They could face a much smaller shortfall of around £70,000 but their closeness to retirement means they’d still need to contribute an extra £370 per month to cover the costs.

The calculations are based on the state pension increasing by three per cent per year from this year and hitting approximately £23,000 by the time the 40-year-old hits 63 and then continuing to grow by three per cent per annum.

On the same basis, the state pension would hit approximately £17,000 per year by the time the 50-year-old turns 63.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown said: “We are living longer lives, but not necessarily healthier ones – which creates hidden horrors for our retirement planning.”

She continued: “The state pension forms the very foundation of people’s retirement income. It currently stands at £11,502 per year for someone in receipt of the full amount.

“This would give a gap of almost £35,000 for someone needing to fill the three-year gap today – more if you add in the annual increases from the triple lock. This is an enormous chunk of money that many will struggle to find.”

Morrissey explained that the figures demonstrate the huge importance of saving what is possible into one’s pension. This way people can be better equipped for challenges they face in later life.

People can draw an income from their SIPP, personal or workplace pension from the age of 55 (going up to 57 in 2028) so this “could really help bridge the gap during those years,” she said.

However, with the state pension age set to rise further to 67 then 68, people need to carefully plan for retirement to ensure they don’t run out of money.

Many people risk a gap worth thousands due to illness, but the introduction of auto-enrolment means more people will be saving into their workplace pensions for longer.

The retirement expert continued: “These larger pensions over time will lead to better retirement incomes that should make up some of the gap.

“Let’s also not forget the role employer contributions as well as government tax relief can play in taking the sting out of these figures.

“There are employers who contribute more than auto-enrolment minimums and may also boost their contributions if you increase yours – the so-called employer match.


“It’s well worth checking to see if your employer does this as it can lead to significant uplift to your contributions without necessarily much extra coming from you.”

Savers can also benefit from pension tax relief, which provides a massive boost to people’s pension pots.

For every £80 a basic rate taxpayer contributes to their pension the government will boost it up to £100.

It increases for higher rate taxpayers who only need to contribute £60 to get the same £100 in the pot.

If people can afford to take the opportunity to increase their pension contributions whenever they can - for instance when they get a pay rise or new job - it could be “a great way of boosting your pension relatively painlessly and help you make sure early ill health doesn’t derail your retirement plans.”

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