1. How much income will I need to receive when I retire?
The amount of income you’ll need in retirement will depend on a range of factors. This would include :
- Daily living costs, such as food
- Household bills
- Other financial commitments such as insurance
- Spending on leisure and entertainment
- Spending on family and friends
Contact us and we’ll do an Affordability Check for you.
This will give you an accurate picture of your expected outgoings and how your pension arrangements may be best used to meet your future requirements.
2. How much income will I actually receive when I retire?
There are different types of pensions and working out how much you’ll receive will depend on what type of pension you hold. You may hold more than one pension so it’s important to identify any pension arrangements you’ve accumulated during your lifetime.
There are broadly two types of pensions:
- Defined contribution (sometimes referred to as ‘money purchase’)
- Defined Benefit pensions
These will generate pension in different ways. Let’s take a closer look…
3. What is a defined contribution pension?
A defined contribution pension is like having your own ‘pot of money’ which is managed by a pension provider, such as an assurance company. You accumulate money into the pot over time and invest it in a range of investment funds of your choice.
When you choose to retire (the minimum age is now 55), you can draw at least a quarter of your pot tax-free and the balance may be used to create your pension in retirement which is subject to income tax.
Your pension fund will need to last as long as you do and sometimes decisions are irreversible. So, may sure you decide carefully how you plan to use it. We can help you make this big decision.
In a defined contribution scheme, money invested in these funds normally go up and down over time depending on the types of assets your money invests in, how these funds are managed and the amount of charges the fund manager takes over time. If you have a stakeholder pension or similar company pension, all charges are normally limited to 1% of your pension fund per year. Charges will vary however, depending on the types of funds you choose to invest in.
Fund managers normally invest your money in a range of assets including shares, property, loans to companies and the government and cash for banks to use.
Some investment funds hold riskier assets and so you are more at risk of losing money, but equally you may find these assets perform well in the long run. Investing in lower risk assets means you are less likely to lose money, but they’re unlikely to provide as good return in the long term compared to more riskier assets.
Choosing the right investment fund or mixture of funds is very important and you should always seek financial advice!
To find out the value of your funds, all you need to do is contact your pension provider. Sometimes the provider will give you the opportunity to register to look at the value of your pension through an online ‘customer portal’. Alternatively, they can send you information in the post. Don’t forget to ask for a projection as well as a valuation of your pension. The projection will give you an idea of what you’ll receive when you retire.
We can help you gain an accurate picture of what all your pensions are worth and how you can make the most of them.
Things to think about…
- Pension projections include lots and lots of assumptions. But it is helpful as a guide.
- Don’t forget to factor in inflation – your pension fund will fall in value simply because the cost of living increases.
- Your pension pot is purely what you’ve saved up. This will need to be converted to a guaranteed income (by buying an annuity) or drawn flexibly.
- Remember, your pension fund will need to last as long as you do! So may sure you decide carefully how you plan to use it.
- Don’t forget that you may have to pay tax on any income you receive.
- The amount of pension you receive will also depend on how you draw your pension.
- Find out different ways of drawing your pension.
With all of these points, we can help.
4. What’s a defined benefit pension?
Defined benefit pensions are sometimes referred to as ‘final salary’ pensions. These types of pensions are normally provided to employees who work in the public sector, such as teachers, NHS staff, police, armed forces and government employees. Some larger companies have also historically offered this type of occupational pension to their staff.
A defined benefit pension promised to pay a pension and possibly a cash lump sum at a member’s scheme retirement age. The amount you’d receive would be based on your length of service and your pensionable income.
Your defined benefit pension will normally be worked out as length of service your period of service divided by a factor, commonly 60 or 80 depending on the scheme rules, multiplied by your pensionable income. For example, 30 years/60 x £30,000 = £15,000.
Your length of service would be the period you’ve worked for the organisation. This may allow for career breaks, so you should check with your Scheme Administrators how they will work out your period of service.
Your pensionable income would be based on the rules of the scheme and may include your basic salary, a percentage of bonuses etc. This could be based on your :
- income leading up to retirement, or
- your average pensionable earnings over a certain number of years prior to your retirement date, or
- an average of your pensionable earnings across your entire period of service.
You can find information about any pensions you may have accumulated by using the Government’s Pension Tracing Service. We can also help with this.
5. Will I receive a State pension?
Women born on or after 6 April 1953 and men born on or after 6 April 1951 will receive the new ‘single tier’ State pension.
The new State pension is designed to be more straight forward that the previous State pension. If you were born before the above dates and deferred taking your pension until 6 April 2016 or after, it’ll still be calculated under the old system.
6. When can I draw my State pension?
The date when you will be entitled to take your State pension (your State Pension Age) depends on your date of birth. You can find our your State Pension Age here.
7. How much State pension will I receive?
The amount of State pension you’ll receive will depend on your history of National Insurance contributions.
To receive the maximum amount, you will need to have a contribution history of at least 35 years. Even if you’ve paid in for 35 years, you’ll still need to pay National Insurance contributions up to your retirement date.
For the tax year 2020-21 the maximum new State Pension is £175.20 per week.
If you’ve been paying National Insurance Contributions before 6th April 2016, you’ll also be might get more than the full amount if you have built up entitlement under the previous State pension arrangements.
You also have an option to defer taking your State pension to a later date. This may mean that your State pension will be higher when you take it.
To find out exactly how much you’ll receive, go to the Government’s website – its State pension calculator will tell you instantly.
8. What if I am caring for someone or have special needs?
You may also be entitled to Pension Credit which can top up your weekly income to £173.75 if you are single, or £265.20 for a couple. You may receive more than this if you have a disability, caring for someone or have specific housing needs. If you claim Pension Credit, you may also be entitled to certain Housing Benefits. Make sure you claim Pension Credit!
It’s thought that only one in three who are entitled, actually bother claiming it. But take care of the pennies and the pounds will look after themselves! Call the claim line on 0800 99 1234 to check if you qualify.