To make sure you’re on track to meet your retirement goals, it’s important to review your pension savings and estimate the income they’re likely to generate in retirement. If there’s a shortfall in your savings, the earlier you spot it the easier it will be to fix.
Where to start and which figures to use
The sections below explain where to find estimates of the monthly retirement income you can expect from different types of pension.
You don’t need to worry about the effects of inflation between now and your retirement.
The pension statements and forecasts referred to below will provide estimates of your future pensions income in “today’s money”.
Bear in mind that all the estimates are shown before tax.
Estimate your potential sources of retirement income
The State Pension
It’s a good idea to regularly request a State Pension statement so you can see how much State Pension you’ve built up so far.
You can apply for one online or by phone or post if you are aged 16 or over and at least 30 days away from your State Pension age.
You’ll find details about how to do this at GOV.UK.
Defined benefit (final salary) pensions
These pay a retirement income based on your salary and how long you have worked for your employer.
These are also known as ‘final salary’ or ‘career average’ pension schemes. They’re generally only public sector or older workplace pension schemes.
If you belong to one, you’ll usually be sent an annual benefit statement by your pension scheme.
If you don’t receive a statement, you can request one.
The statement shows how much pension you might get. It might assume that you take your tax-free cash lump sum.
Defined contribution (money purchase) pensions
With these schemes you build up a pot of money that you can then use to provide yourself with an income in retirement.
The value of your pot is based on your contributions, your employer’s contributions (if applicable) plus investment returns and tax relief.
Defined contribution schemes include workplace, personal and stakeholder pensions.
Schemes can be run through an insurance company, master trust provider, or you might be a member of a bespoke scheme set up by your employer.
Your annual statements estimate the monthly retirement income your pension is on track to generate if you were to convert it into an annuity.
An annuity provides a regular retirement income, usually for life.
Make sure you use the most recent statements you’ve been sent, as these will contain the most up-to-date estimates.
The income on your statement might not assume that you take your tax-free cash lump sum.
New rules for defined contribution pensions
Changes introduced in April 2015 give you complete freedom over how you can access your pension funds if you’re 55 or over and have a pension based on how much has been paid into your pot (such as a defined contribution, money purchase or cash balance schemes).
So while your pension statements provide useful estimates of your likely retirement income based on you converting your pension pot into an annuity, you do have other options.
Other sources of retirement income
In addition to your pensions, you might have other savings and investments that will generate an income for you in retirement.
For example cash deposits, share-based investments or a property you rent out.
Check your progress using our retirement planning worksheet
When you’ve worked out how much retirement income you’ll have, use our budgeting in retirement worksheet to compare this to your retirement income goal.
Your next steps
If you have a shortfall in your projected retirement income, read our guide on filling a gap in your pension savings.
If your savings are on track, great – but there might be things you can do to make them work even harder for you.
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