Single people face £2k retirement shortfall. Can you fill the gap?

It is not just love and companionship that single people may be missing out on this Valentine’s Day.

Single people need to accumulate significantly more personal investments and pension savings to maintain the same standard of living in retirement as couples.

According to the Pensions and Lifetime Savings Association (PLSA), retirees need an income of £14,400 per year to achieve a minimum retirement living standard.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

But research by retirement product provider Just Group shows that assuming a full state pension of £11,502 a year, a single person faces a shortfall of £2,897 to hit the minimum threshold.

A single 65-year-old would need a pension fund of about £50,000 to secure the extra £2,897 a year income after tax from their pension.

It would be even harder if you want a moderate standard, which is estimated to be £31,300, rising to £43,100 for a comfortable retirement.

In contrast, a couple both receiving full state pensions will reach the ‘minimum’ with an additional £604 a year on top.

It is another example of the single premium hitting those who aren’t coupled-up.

There are more important factors when choosing a partner other than your pension but Stephen Lowe, group communications director at retirement specialist Just Group, said the figures show the financial advantages of coupling up and being able to split the costs.

“The figures reinforce the importance of building up some private pension savings or other investments while you are working and then using them wisely when you reach retirement.”

How to plug your pension gaps

There is strength in numbers when it comes to planning your retirement. If you are married or have a partner, you can combine your savings and share the costs.

Beyond the romance and companionship, there are also tax benefits to being married.

That doesn’t mean you need a partner though to plug your pension gaps. A single person can still take control of their own finances.

One way is to increase your pension contributions, putting more money to work in the stock market to help grow your retirement portfolio.

Lowe adds: “Small pension funds tend to be seen as a problem that many people solve by withdrawing the money the first chance they can.

“For many people those small pension funds will make the difference between not quite having the spending power to reach the minimum retirement living standard or being able to surpass it and enjoy more treats.”

Another option is to work for longer. This means more years of contributing and also gives you the possibility of deferring your state pension.

Daniel Wiltshire, independent financial adviser at Wiltshire Wealth, said: “Retirees can choose to defer their state pension, which can increase the amount they receive when they eventually claim it.

“For every nine weeks they delay taking their pension, it increases by 1%, equating to around 5.8% per year. This uplift can help plug an income shortfall in later life, which may be beneficial for those who have no other retirement provision.”

It is also worth checking if you can increase your state pension entitlement by filling any gaps in your national insurance (NI) record.

Usually you can only fill gaps in NI contributions for the past six years, but under a special concession, the government has let people also claim back to between April 2006 and April 2018.

This ends in April though so you need to act fast.

Gabriel McKeown, head of macroeconomics at Sad Rabbit Investments, said: "In the great pension race, every missing year is a hurdle, and with the cost of living crisis still present, many are rushing to plug NI gaps to secure a finish line of financial stability.

“Furthermore, from a purely financial standpoint, topping up contributions offers a compelling proposition, as with inflation and longevity risks on the rise, maximising a reliable, inflation-protected state pension can be a prudent hedge against future financial uncertainty.

“However, for those willing to explore beyond the state pension, private investments in a diversified portfolio can enable individuals to build a strategy that adapts to market conditions and may outperform the fixed returns provided by government pensions, offering a more flexible approach tailored to risk tolerance, time horizons and financial goals."