How much State Pension will you receive in retirement?
A Which? report back in February confirmed that three in ten people are overestimating the size of the State Pension they will receive, some by as much as £50,000.
It may not be your main source of income in retirement, but it can be a good foundation to build your plans around.
Only 29% of those surveyed knew the average State Pension amount. While the report blamed “a lack of clear and easily accessible information”, there are many factors that can alter the amount you receive, and that could prevent you from getting the full payment.
Your National Insurance record, time spent “contracted out” – even unknowingly – and the value of any voluntary contributions or State Second Pension will all play a part in the final calculation.
At Logic, we can help you work out the amount of State Pension you’ll receive. We will then build this amount into the long-term retirement plan we put in place for you.
Keep reading for your guide to understanding the State Pension.
When will I receive my State Pension?
The State Pension age is currently 66 but there are planned increases, to age 67 by 2028 and 68 by 2046.
You can check your State Pension Age to see when you will be able to start receiving your State Pension.
How much will I receive?
For the 2021/22 tax year the full new State Pension is £179.60 a week, or £9,339.20 a year.
If you reached State Pension Age before 6 April 2016, you’ll be receiving the basic State Pension under the old rules. The full basic State Pension is £137.60 per week but this could be more based on the additional State Pension you may have earned through additional contributions (via SERPs or S2P – see below).
What can affect the amount I receive?
Your contribution history
To receive the State Pension, you must have at least ten years of National Insurance credits on your record. To receive the full amount, you’ll need 35 “qualifying years”.
If you have between 10- and 35-years’ contributions, you’ll receive a State Pension amount based on the number of qualifying years.
You can check your National Insurance record to see if you have a shortfall.
If you do, then please contact your Logic adviser and they will talk you through what you need to do.
Additional State Pension
Between 1978 and 2016 it was possible to build up additional State Pension, through the State Second Pension (S2P) or State Earnings Related Pension (SERPS).
Although these additional top-ups are no longer allowed, you can keep any additional amount you built up under those rules.
Contracting out
Before 2016, it was possible to “contract out” of the additional State Pension.
Contracting out meant that you paid less in National Insurance contributions, with the difference going into your workplace pension scheme. You might have paid this amount yourself, or your employer might have paid it on your behalf.
It’s possible that you didn’t know you were contracted out, but it could still affect the amount of State Pension you receive.
Check if you were contracted out of the State Pension and then be sure to contact us if the answer is “yes” as there may be a way of paying additional National Insurance contributions to make up any shortfall.
How do I know what I will get?
You can check your current State Pension entitlement to see how many years of annual National Insurance contributions you need to make to qualify for the full State Pension.
Be aware that this will assume that you continue to make contributions up until your State Pension Age, so if you are planning on stopping work early, you may need to continue to pay National Insurance contributions for some years after you have stopped. It’s usually really good value, however, so talk to us about what you should do if you think this affects you.
What about inflation?
The State Pension currently rises each year to combat inflation. The pension triple lock guarantees an annual increase by the highest of:
- 2.5%
- Average earnings growth
- Annual price inflation, as measured by the consumer prices index (CPI)
The triple lock has been under threat for some time and the coronavirus pandemic could hasten its demise. Whether the triple lock is scrapped altogether or replaced by an alternative, such as a double lock, for example, remains to be seen.
How does the State Pension fit into my retirement plans?
While £179.60 a week might not seem like a huge sum, you would need a retirement pot of around £325,000 to provide an income of £9,339.20 a year.
The State Pension might not be your sole or even your main source of retirement income but receiving your full entitlement could make a dramatic difference in retirement.
A steady and known income, protected against inflation, could allow you to pay off some fixed expenses while taking more flexible pension options with other pots you hold.
Speak to Logic and we can help build your State Pension into your retirement plan. Your plan will be based on all your available income streams, from workplace pensions to investment portfolios and buy-to-let properties, helping you live your desired lifestyle throughout your retirement.
Get in touch
If you would like help understanding any aspect of your State Pension or want to discuss how other income might fit into your retirement plans, please email us at info@logicfinancialservices.co.uk or check with your adviser.
Please note
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
