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The State Pension is a source of much frustration for many people in the UK. It’s not hard to see why.

For starters, the new State Pension is currently just £175.20 per week. That equates to just £9,110 per year, well below the amount you realistically need to live a comfortable retirement.

Secondly, the State Pension age is rising. In the past, you could claim yours at 65. However, by 2028, the State Pension Age will hit 67 for both men and women. When you consider the average life expectancy in the UK is 81 years, that’s not ideal.

The State Pension triple lock could be scrapped

Making matters worse, there’s now talk the State Pension’s triple lock could be scrapped. This is the mechanism that ensures annual increases are decided by whatever is the highest out of price inflation, average earnings growth, or 2.5%.

The reason the triple lock could be scrapped is that, next year, average earnings may soar due to the fact many people in the UK have been furloughed this year. This would mean hard-pressed taxpayers would essentially have to fund a large pension increase for those who are retired. So, the triple lock could be scrapped, meaning more uncertainty in relation to future State Pension increases.

All in all, it’s a grim situation for those in, or approaching, retirement.

Protect yourself now 

Of course, if you’re yet to retire, there are ways to protect yourself against the State Pension weakness. Plan ahead, and you may not have to worry about the size of the State Pension, or issues such as the triple lock.

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Happy retired couple on a beach

When it comes to saving for retirement, one of the smartest things you can do is save into your own pension. The reason is that all contributions into a private pension come with tax relief. This is essentially a reward from the government for saving for retirement. Basic rate taxpayers receive 20% tax relief, meaning that an £800 pension contribution gets topped up to £1,000.

Investing your retirement savings properly is another strategy that can help protect you from the State Pension. If you’re not going to need access to your retirement savings for a few years, it could be a good idea to invest some of your money in shares.

While shares can be volatile in the short term, they tend to generate much higher returns than other assets, such as bonds and cash savings, in the long run. Historically, shares have produced returns of around 7-10% per year for investors over the long term.

That kind of return could make a big difference to your retirement savings. Invest £10,000 per year (you’d only need to invest £8,000 if saving into a pension once you factor in tax relief) and earn 8% per year on your money. Then you could be looking at savings of nearly £150,000 within 10 years.

Investing for retirement has never been easier

Investing doesn’t need to be complicated. It’s possible to generate great returns with a simple long-term, buy-and-hold strategy. 

As always though, the key is to start saving and investing as soon as possible. The sooner you start planning for retirement, the more protected you’ll be from a meagre State Pension.

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The post The State Pension triple lock could be scrapped. This is what I’d do to protect myself appeared first on The Motley Fool UK.

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Motley Fool UK 2020