Can the UK still afford to fund the State Pension? This is a question economists and politicians have been asking for years. With a new prime minister about to be crowned, uncertainty over the retirement benefit is rising again.
It seems Andy Burnham will be the country’s next leader in a matter of weeks. How can we expect Downing Street’s new resident to address the sticky issue of the pension? And should I take steps to protect myself for retirement?
Talking the talk
One of Burnham’s first steps has been to stress his support for the ‘Triple Lock’ mechanism. This ensures the State Pension rises each year by whichever of these measures is highest:
- Average wage growth
- Consumer Price Index (CPI) inflation
- 2.5%
Labour guaranteed to keep the Triple Lock in its 2024 general election manifesto. The question is, will this remain policy? Burnham has suggested it will, telling the i Paper that breaking this pledge would be “very damaging“.
State Pension danger?
So does this mean Brits can breathe a sigh of relief? I’m not convinced.
I’m not suggesting for a second Burnham is being dishonest. But manifesto promises aren’t set in stone, and he may change course when (as looks likely) he becomes PM and has to balance the books.
I’m also mindful that Burnham’s chief economic advisers aren’t exactly fans of the Triple Lock. Take former Goldman Sachs economist Lord O’Neill. He’s called the Triple Lock “bonkers“, and called for the State Pension to be means-tested, according to The Independent.
Here’s what I’m doing
This uncertainty over the State Pension isn’t going away. Even if Burnham commits to the Triple Lock until the 2029 general election, there’s no guarantee he will after this. He may also go to the polls early and cut the pledge from any future Labour manifesto.
The thing is, funding the State Pension will remain a problem for whichever political party is in power. And given worrying demographic trends and the UK’s weak public finances, anything could happen in the future.
It’s why I’m personally not taking any chances. I invest any money I have left over each month in the stock market after putting aside some small cash savings. That way, I can take control of my own destiny and target retirement income.
A retirement income opportunity?
Share investing delivers an average annual return of 9%. To target this myself, I’ve built a diverse mix of investments that spread my risk and target a range of different wealth-boosting opportunities.
One strategy of mine is to hold exchange-traded funds (ETFs) like the HSBC S&P 500 (LSE:HSPX) fund. It’s a tactic that’s suitable for novice and experienced investors, as it provides instant diversification cheaply and simply.
Like any index-tracking fund, this ETF can fall during broader stock market downturns. But long term, products like this can brilliantly capture the power of the stock market and drive portfolio growth, alongside individual shares. This HSBC one has delivered an average annual return of 15.3% over 10 years, driven by high-growth US tech shares.
If I can hit that 9% average return, I could turn a £500 monthly investment into £915,372 after 30 years. This could then deliver a £54,922 passive income if I invest in 6%-yielding shares. It’s the sort of figure that could give me a comfortable retirement regardless of what happens with the State Pension.
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Royston Wild owns shares in HSBC S&P 500.
