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Forget your State Pension worries! I’d buy UK shares in a Stocks and Shares ISA to retire rich

Peter Stephens
·3-min read
Retirement saving and pension planning
Retirement saving and pension planning

Buying UK shares in a Stocks and Shares ISA could be a sound means of overcoming State Pension worries. While the stock market could experience further volatility in the short run, its long-term growth potential appears to be high.

Therefore, it could eventually provide a nest egg from which a passive income is drawn. This may supplement your State Pension and allow you to enjoy greater financial freedom in older age.

A disappointing State Pension

Buying UK shares in a Stocks and Shares ISA may become increasingly worthwhile over the coming years. The cost of coronavirus may mean that the generous pace at which the State Pension has risen in the past could change. Or it may mean that the age at which it starts being paid continues to rise.

Even if neither of those two scenarios materialises, the State Pension is unlikely to provide a sufficient passive income for most people in retirement. It currently stands at just £9,100 per year. That’s around a third of the average UK salary. As such, it may be important for you to invest money on a regular basis to build a retirement nest egg that can provide a supplementary income in older age.

Buying UK shares in a Stocks and Shares ISA

A simple means of improving your retirement prospects is to open a Stocks and Shares ISA. It can be done online in just a few minutes. It also costs a very small amount of money to manage each year, which means it is accessible to a wide range of people with different levels of income. An ISA offers tax advantages versus other products, and withdrawals can be made at any time without penalty. This is a key differentiator versus a SIPP or workplace pension, where withdrawals are restricted.

Once opened, buying UK shares in your ISA could be a profitable move. Their past performance shows that they have generally offered greater returns over the long run than other mainstream assets such as cash and bonds. With many of them now trading on low valuations following the stock market crash, they could deliver relatively high returns in the coming years as the economic outlook improves.

Reducing risks within your ISA

Of course, managing risk within your Stocks and Shares ISA is important. It can reduce losses, and improve your long-term return prospects.

For example, buying financially-sound businesses may mean that your portfolio is better protected against an uncertain economic outlook. Similarly, buying a diverse range of UK shares may further lower risks and reduce your reliance on a small number of businesses for returns. Over time, this could improve your retirement prospects and help you to overcome what continues to be a disappointing State Pension.

The post Forget your State Pension worries! I’d buy UK shares in a Stocks and Shares ISA to retire rich appeared first on The Motley Fool UK.

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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.

Motley Fool UK 2020