How much money will I have in retirement?
- How much you'll get from the state pension
- How much you'll get from your private pensions
- What other state benefits you're entitled to
Most people’s retirement income is made up of a combination of state pension, private pension savings, other savings and state benefits. But exactly how much each of these will contribute depends on how much you’ve stashed away during your working life, as well as how long you’ve worked for?
Anyone who has been in employment and paid national insurance contributions (NICs) is entitled to a state pension. You needed a minimum of 30 years worth of NICs to qualify for the full basic state pension if you were eligible for it before 6 April 2016, although you don’t necessarily need to have been in paid employment for 30 years to build up this entitlement.
You can also build up national insurance credits if you are a full time carer, or at home looking after children under the age of 16.
The full basic state pension is:
- £119.30 a week (£6,203.60 a year) in 2016/17
- £190.80 for a married couple where one member of the couple does not have enough NICs to receive their own full basic state pension.
On top of the basic state pension, you might also be entitled to the second state pension (S2P), which is an additional state pension linked to the amount that you've earned during your career. In 2016, S2P could add up to £165 a week to your state pension.
However, the second state pension disappeared in April 2016 as we moved to a flat-rate state pension, although it will still have an impact on how much you'll get. Under the new system, people get more or less than the full level of new state pension (£155.65) depending on the second state pension they've built up and their NI and contracting out record.
As well as having a state pension, most people will also have built up some private pension savings. Many people have multiple private pension pots, each of which was opened when they started a new job.
There are two main types of private pension – defined contribution (DC) and defined benefit (DB) schemes. DB schemes typically pay out a percentage of your final salary when you retire, based on how many years you contributed to the scheme. Your annual pension statements should tell you how much you’re on course to receive, but if you can’t find your statements, talk to your employer’s pension department, who will able to tell you.
Turning your pension into an income
If you've saved into a DC scheme, then it's up to you to turn your pension into an income – and working out how much you’ll get can be a little more complicated. Once again, your annual pension statements should include estimates of what you’re on course to have in your pot at retirement – and how much income this will buy you.
To turn your DC pension pot into a regular income, you’ll need to either buy an annuity, or keep your pension pot invested in an income drawdown plan. If you buy an annuity, you’ll hand over your entire pension pot to an insurance company, which will promise to pay you an income for the rest of your life.
If you want to know how much an annuity will pay you, you can use the comparison tables on the Money Advice Service’s website to get an idea. As a broad rule of thumb, in January 2016, a 65-year old non-smoker could buy an income of around £550-£600 a year for every £10,000 in their pension pot.
Since April 2015, you have been able to withdraw as much of the money as you want when you reach 55, although it is taxed as income.
If you opt for an income drawdown plan, your money can stay invested, and you can withdraw money from your pot every year with the remaining funds hopefully continuing to grow.
In the past, income drawdown has only been an option for people with larger pension funds. This is changing as companies create new products in the wake of the end of compulsory annuities in April 2015.
Find out more about your income options when you convert your pension.
Other income in retirement
While there are strict rules as to how you can withdraw money from your pension, there's no such regulations for managing your savings. So if you’ve got money saved in Isas or other savings and investment accounts, you can use this to supplement your income as you see fit.
You may also choose to continue doing some work in retirement.
Finally, there are a number of state benefits which can help boost your income, or reduce your costs in retirement. These include free television licences and bus passes, through to the winter fuel allowance. Our guide to benefits in retirement explains everything that you’re entitled to.
- Company pensions explained - for more on what you're entitled to from your employer
- How to plan an effective budget - expert advice on sticking to a budget
- The Which? Money Helpline - speak to one of our experts about planning your retirement
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