Figuring out the state pension

The ones that tried to measure this as if it were an annuity were on the surface the most profound.

Prudential said a single-life annuity paying £144 a week would require a defined contribution pension pot of £130,000. Tom McPhail, head of pensions research at Hargreaves Lansdown, said a pension of £144 a week (£7,488 a year) for a 65-year-old with 50 per cent spouse’s pension and RPI protection requires a pension pot of around £206,250.

Andrew Vaughan, chairman of the Association of Consulting Actuaries, put it another way. He said the new state pension would deliver less than a 30 per cent replacement income for those on average earnings, and auto-enrolment contributions of 8 per cent might typically add a further 15 per cent, a truly humbling comparison. The answer, he concluded, was a defined ambition pension.

The members of our society that will have to do the most amount of worrying about their DC pot sizes are the young. Punter Southall’s technical director, Joanne Livingstone, said a 23-year-old who has just started work might, if longevity improvements continue at the forecast rate, have to wait until the age of 73 to be able to claim their £144 a week.

Aviva went one further by guessing that a baby born today would have to wait until the age of 80 to pick up their state pension. This assumes the state pension age increases by one year every five years after the current planned increase to age 67 in 2028.

These calculations have led to a fair bit of angst about those who are losing out and those who are gaining from the changes. It does appear unfair on the young – not least, as one actuary said, that they may live longer, but those extra years spent waiting for their pension over the age of 65 may be spent in ill-health.