Pre-state pension income gap means you need an extra £85,000 if you want to retire at 63 - can you afford to retire early?

You’ll need £85,000 to plug the ‘pre-state pension gap’ if you wish to retire at 63, according to a study.

And the figure rises to £130,000 if you wish to retire even earlier at age 60.

Pension provider PensionBee (opens in new tab) has identified a ‘pre-state pension gap’ - the amount of money you need to retire earlier than the state pension age of 68 - and its findings suggest that the extra savings needed to retire early may be out of reach for an average worker. 

For example, in order to retire at 60, plug the pre-state pension income gap for eight years AND continue to draw on a private pension alongside the state pension from 68 to 83, you’ll need to have savings of £232,000 by the age of 60.

But someone with a typical saving pot of £40,000 by age 50 would realistically only build up an estimated £78,600 by the time they turn 60 - leaving a shortfall of around £153,400.

And it’s only slightly easier if you want to retire at 63, plug the pre-state pension income gap for five years and continue to draw on a private pension alongside the state pension from 68 to 83: in this case you’ll need savings of £181,000 by the age of 63.

But, again, someone with a typical saving pot of £40,000 by age 50 would realistically only build up an estimated £91,400 by the time they turn 63 - leaving a shortfall of around £89,400.

Age 60 is considered the ‘ideal’ retirement age while the UK healthy life expectancy age is 63.

But four in 10 British adults (40%), equivalent to around 13m people, think they will not be able to retire before the state pension entitlement age. This rises to 48% if the state pension age rises to 68.

Becky O’Connor, director of public affairs at PensionBee, says: “The government may want to end the Great Retirement, but the truth is that retiring before state pension age is pie in the sky for many. Meanwhile, 4 in 10 workers think they wouldn’t be able to retire before State Pension entitlement age, suggesting that bringing forward the increase to age 68 would not merely be a costly inconvenience for more people, it would effectively force more workers to carry on working until the point they can draw their State Pension.”

How to boost your pension savings

There are a number of ways you can boost your pension savings and secure yourself a more comfortable retirement. 

• Save thousands of pounds in fees. Check the fees’ on old and current pensions and switch to a lower cost provider to make significant savings. You could save £259 a year (opens in new tab) (or £12,000 over a working life) this way, according to investment platform interactive investor. High fees are generally over 1% while lower ones are below 0.5%. Sometimes a flat fee can be better value. You should be able to see pension charges on your annual statement, but ask your provider directly if it’s not clear. 
• Check you’ll receive a full state pension. You need 35 years' worth of National Insurance credits (NICs) to get a full state pension. If there were years where you didn't get enough NI credits - for example, if you were employed on low earnings, unemployed but not claiming benefits or living abroad - you may find there’s a gap or two on your record. It’s possible to get free NI credits to fill these gaps under certain circumstances. Others can fill gaps by paying voluntary NI contributions. Read our article State pension: Does it pay to buy National Insurance credits? to learn more. 
• Track down lost pensions. More than 2.7m pension schemes worth £26.6bn remain unclaimed or “lost”. You can use the government’s free Pension Tracing Service to track down a forgotten scheme. 

Related articles

• State pension could hit 68 sooner than expected - what it means for you 
• Opt out of a pension? Here’s how to make up the shortfall 
• Pensions versus Lifetime ISAs - which is best for your retirement plans? 
• State pension: Does it pay to buy National Insurance credits?