Knowing how much pension you’re likely to receive when you retire is a fundamental starting point for your future planning. But with a combination of private and State Pension to take into account, plus incoming rule changes, it can be hard to know where to start. Answering these key questions should help you.
What age can you retire?
A good place to start is to consider when you might want to retire – and when you’re allowed to. The earliest date you can start to draw on your pension is usually 55, although there are some exceptions for ill health. Be aware that your pension will be smaller if you retire early because you will have had fewer years to pay in, and what money you have paid in has to last longer.
The minimum retirement age will rise to 57 in 2028 and then remain 10 years below the State Pension Age.
The State Pension Age is also set to rise. At the moment it is 65 for men and increasing to 65 for women by November 2018. It will then rise to 67 for both men and women by October 2028. The Government will review the State Pension Age every five years from 2017 and make changes if necessary, based on life expectancy and other factors. The Government’s State Pension Calculator can help you work out your State Pension Age.
Remember, your employer can’t usually force you to retire just because you’ve reached the State Pension Age.
What’s your works pension entitlement?
If you’ve paid into a personal works pensions over the course of your career, you will have built up your own pension entitlement in addition to the State Pension. How much that is depends on a number of factors, including what kind of pension it was (defined benefit or defined contribution), how long you were a member of the scheme and how much you paid in.
To find out how much you’re entitled to, check the annual statement that your pension scheme should send you.
If you have had several jobs throughout your career and have lost track of what pensions you might have had over that time, see our guide to finding lost or old pensions. You can also find more help from the Money Advice Service.
How much State Pension will you get?
Knowing how much State Pension you can expect and when you will be able to claim it is an important part of planning for retirement.
At present, the State Pension Age is 65 for men. For women, it will reach 65 by November 2018 and will then rise to 67 for both men and women by October 2028, before rising further in future years.
But if you’re due to reach the State Pension Age on or after 6 April 2016, you will be eligible for the New State Pension, which will pay at least £148.40 a week – over £7,700 a year – if you have 35 years’ National Insurance Contributions (NICs) or equivalent credits.
To find out more, including how to find out how much you might receive, see our guide to the State Pension.
Will you use the new pensions rules?
From April, how you take your pension is changing. If you have a defined contribution or money purchase pension, you will no longer be required to arrange a retirement income, for example, by buying an annuity. Instead, you will be able to draw on your money as you need it.
Be aware though, that tax rules apply. Aside from the initial tax-free 25% lump sum that you will be entitled to, the rest of the money you take out will be subject to income tax at your normal rate. Read more about paying tax on your pension.
How much do you need to live on?
Knowing what you need to live on is the cornerstone of good retirement planning. With an idea of your pension income, you can set your budget accordingly.
Skipton Building Society’s retirement planning calculator has been developed to help you to understand how much money you may need in retirement.
Based on the age you wish to retire, some basic pension information if you have it, your current outgoings and an idea of what you might spend in retirement on essentials and the fun things, the calculator will produce a report showing your potential retirement income and any shortfalls from the information you have provided, to help you plan.
How are you preparing for retirement? What questions are you asking? Please let us know in the comments below.
This article has been commissioned and written by retiresavvy and any opinions voiced are the author's own.
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