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The State Pension will rise by less than inflation — that’s why I’m investing in UK shares

State pensioners face tough times from April as inflation rockets. By investing in UK shares, I'm hoping for a rising income in retirement. The post The...
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One of the main reasons I am investing in UK shares is that I don’t want to rely on the State Pension to give me a decent standard of living in retirement. It doesn’t pay anywhere enough income, as millions of pensioners have discovered to their cost.

As inflation skyrockets, the State Pension is looking even more inadequate. Especially since Chancellor Rishi Sunak has suspended the annual triple lock uplift.

The triple lock increases the State Pension either by earnings, inflation or 2.5%, whichever is higher. Pensioners were on course for an 8% increase this year, as wages rocketed in the wake of the pandemic, until Sunak intervened.

I’d rather rely on UK shares

Sunak scrapped the earnings element of the triple lock, so that pensioners will get a rise of just 3.1% from April 6. With inflation set to hit 7.25% that month, according to the Bank of England, the State Pension will actually fall by £387 a year in real terms. UK shares can be risky too, but at least politicians don’t decide how much I get each year.

The State Pension is hugely important because it offers a steady, rising income in retirement. From April, it will pay up to £9,627.80 a year. I would need a portfolio of almost £200,000 to generate a similar-sized income. So it plays an important role, but it’s not enough to fund a comfortable retirement.

That’s why I’m investing in a balanced portfolio of global funds, to spread my risk and give me international exposure. I will complement this with a blend of UK shares.

I make regular monthly contributions into a personal pension and Stocks and Shares ISA, plus lump sums when I have spare cash. I particularly like to load up on UK shares in the wake of a stock market crash, when valuations are cheaper.

It’s never easy buying shares when stock markets are falling and everybody is panicking. I get round this by reminding myself that I am investing for the long term, at least 15 or 20 years. That allows plenty of time for stock markets to bounce back.

I will reinvest all the dividends from my UK shares for capital growth, while I’m still working. When I retire, I will draw them as income, to supplement my State Pension.

I’d buy these FTSE 100 stocks for passive income

There are loads of top FTSE 100 dividend stocks paying an incredible passive income to pensioners. Fund manager M&G currently yields staggering 8.60%, while insurer Phoenix Group Holdings yields 7.65%.

Admiral Group, Antofagasta, British American Tobacco and Abrdn all yield more than 6%. That’s around 10 times the return on the average savings account, even after last Thursday’s Bank of England base rate increase.

Incredibly, housebuilder Persimmon and global minor Rio Tinto yield more than 10% right now. Although I’m always wary when UK shares offer such dizzying yields, and would investigate them carefully before buying.

Naturally, UK shares can be risky. If markets crash, so will my portfolio. Some individual stock picks will inevitably underperform. Dividends can be slashed, as well as increased. There are absolutely no guarantees. But in contrast to the State Pension, that’s down to me, rather than the whims of the Chancellor of the day.

The post The State Pension will rise by less than inflation — that’s why I’m investing in UK shares appeared first on The Motley Fool UK.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Admiral Group and British American Tobacco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.





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