Three in 10 people are overestimating their future state pension payments, some by as much as £50,000 over the course of retirement, Which? has found.
We quizzed 2,000 members of the public about the pension system, including key rules around how you can access your retirement savings, and how the state pension works. The results revealed some worrying knowledge gaps.
How much is the state pension worth?
Fewer than three in 10 (29%) people knew or guessed that the average amount people get from the state pension is around £150 a week or £7,800 a year.
Meanwhile, a quarter (25%) of savers wrongly thought that figure was £175 a week or £9,100 a year.
While this is the full level of the new state pension, not everyone will get this. Your entitlement depends on how many years of National Insurance contributions you have, and whether you contracted out of the additional state pension.
Those who reached state pension age before 6 April 2016 receive £148 a week, on average, while people receiving the new pension get a weekly average of £158.
4% of people wrongly thought that the state pension is worth £200 a week or £10,400 a year on average.
This means people may be overestimating the amount they will get from state pension by as much as £49,400 over the average length of retirement (66 to 85).
- Find out more: how much state pension will I get?
When will you get the state pension?
Just three in 10 (29%) people who took our survey correctly identified that the current state pension age is 66.
Most respondents (35%) thought the state pension was 67, but this increase won’t happen until between 2026 and 2028.
Reaching the right age alone isn’t enough to qualify for the state pension – you also need to have built up a minimum National Insurance (NI) record.
Just one in five (18%) people knew you have to make at least 10 years of NI contributions to get any state pension at all.
One in 10 (11%) thought it was either five years or none at all; 36% said they didn’t know.
- Find out more: how do I qualify for state pension?
What can you do with your private pensions?
In comparison, people scored relatively higher correct scores when asked about private pension rules.
Nearly four in 10 (38%) correctly identified 55 as the age at which you can first access your defined contribution pensions; one in 10 (10%) wrongly thought 50 is the minimum.
This age will rise to 57 from 2028 amid fears that allowing savers to access their savings at 55 could lead to some running out of money later in life.
Around four in 10 (43%) of people knew that thanks to ‘pension freedom’ rules you now have the option to cash in an entire defined contribution pension, arrange an annuity or use pension drawdown to keep your money invested and withdraw lump sums. You can also use a combination of these options.
To help people understand their options for accessing their pension pots, the government launched the free guidance service Pension Wise in 2015 for anyone over 50 with a defined contribution pension.
While four in 10 (40%) people we surveyed knew that Pension Wise is the name of this service, fewer than one in 10 of those eligible have actually used it, according to the Pension Wise’s own evaluation.
- Find out more: what can I do with my pension pots?
Pension dashboards will be a game changer
On average, people scored just four out of a possible 14 in our quiz, which is perhaps unsurprising given the complexity of the pension system.
Which? has long called for the introduction of a pension dashboard, which would allow savers to see all of their pensions (including the state pension) in one place online, putting them in a stronger position to plan for retirement.
Despite first being announced in the 2016 Budget, the launch of a prototype dashboard has been pushed back to 2023 – four years after the initial deadline for the scheme.
Which? is calling on the government, regulator and industry to ensure the dashboard is delivered as a matter of urgency for consumers, to help millions of people to keep track of their pensions more easily and understand them better.
- Find out more: eight ways pensions are about to get better