- These figures are only illustrative.
- You may also have other sources of income which you are considering using for your retirement.
- This illustration shows, in today's prices, the pension that might be payable on retirement. This means that we have allowed for future inflation to give an indication of how much someone might be able to buy with a pension if it were payable today.
- Your State Pension Age currently depends on when you were born and whether you are a male or female. Please see https://www.gov.uk/calculate-state-pension for calculating State Pension Ages. State Pension Ages are in a transition period where the State Pension Age is gradually increasing towards age 68 and the Tool currently reflects these transitions. The Government has recently announced proposals to link the future State Pension Age to longevity expectations with a review to be carried out every 5 years, and notification of a change to be given 10 years in advance.
- If retirement is earlier than the assumed State Pension Age, your projected income on retiral will not include Basic State Pension.
- If retirement is earlier than the age the pension income entered on the Pension Income page starts then your projected income on retiral will not include that pension income.
- The value of investments can vary from this illustration. As such, these figures are not guaranteed.
- These figures do not take into account any tax that might be incurred if the fund(s) in the pension plan(s) exceeds the Lifetime Allowance. More information can be found in the Tax section below.
- All firms use the same rates to show how funds may be converted into pension income.
- The minimum required to be paid towards a pension may be determined by the product rules of that pension, or by your employer for company pensions. There is generally no maximum payment, however there are tax implications as described below of paying more than an amount set by HM Revenue & Customs in a tax year or accumulating more than the Lifetime Allowance in total across all your pension funds.
The Government changed the tax regime for pension on 6 April 2006. In the new regime the maximum permitted payment you can make to a pension which is eligible for tax relief is the greater of your relevant UK earnings (annual salary) subject to the Annual Allowance or £3,600 each year. These limits are set by HM Revenue and Customs and apply to the total payments made by you and any third party (including your employer) to all your pension arrangements.
There is also an Annual Allowance for tax relief on payments that you, your employer and any third party can make to all pension arrangements. The Annual Allowance for the tax year 2013/14 is set at £50,000. Payments above the Annual Allowance may be subject to a tax charge (depending on previous years pension payments) at an individual's marginal tax rate. The Government announced in the 2012 Autumn Statement proposals to reduce the Annual Allowance to £40,000 for the tax year commencing 2014/15.
There is a HM Revenue & Customs limit known as the Lifetime Allowance. This is the total value of all pension benefits you can take in your lifetime without paying a tax penalty. Anything over the current Lifetime Allowance limit may be subject to a tax charge. The rate of the Lifetime allowance charge depends on how benefits are taken. For more information regarding Lifetime Allowance please click here.
Tax rules and legislation may change. The value of tax relief may change and will depend on your financial circumstances. The information we have given is based on our understanding of law and HM Revenue & Customs practice at 6 April 2013.
- The illustrations assume an annual growth rate of 7% and an annual management charge of 1%. A higher (or lower) annual management charge may apply depending on the actual funds your pension is invested in. In addition there may be other product charges, consultancy charges, adviser charges or fund discounts. If the total level of charges after allowing for any discounts is higher (or lower) than 1% then your projected income would be lower (or higher) than the figure shown here.
- When determining the values in today's terms, inflation in the Retail Prices Index is 2.5% each year.
- Payments into this plan are assumed to increase at 4% each year. Salary escalation is assumed to take place 12 months from today and therefore the pension projection may be underestimated if there is a salary increase before the end of this 12 month period.
- The first pension payment will be paid on the birthday during the year of retirement and will be paid every month from this date until death.
- The pension will alter in line with the Retail Prices Index each year from the time it starts. We have assumed the Retail Prices Index will increase by 2.5% each year.
- We have assumed you are currently exactly six months older than the age entered. This may overstate the pension projection by assuming more monthly payments than actually made and more growth.
- On retirement, you'll be married (if you are in a civil partnership or single the projected income is likely to be different) to someone three years younger than you (if you are male) or to someone three years older than you (if you are female).
- Your spouse will get half your pension after you die.
- We have assumed a single person's allowance for the Basic State Pension on the basis that your spouse is entitled to a full Basic State Pension in their own right. If this is not the case and you are entitled to the full married couple's Basic State Pension, your State Pension would be higher than the figure used in this illustration by £3,432.00 (for tax year 2013/14) each year.
- Where Basic State Pension is included, we have assumed you have 30 qualifying years for a full Basic State Pension. We have assumed that the Basic State Pension is altered in line with the Retail Prices Index in each future year.
It should be noted that the Government announced in January 2013 proposals that would make significant changes to the State Pension. The key proposals are:
- Introduce a new, flat-rate state pension worth £144* a week in today's prices will be introduced in April 2017 at the earliest;
- only available to people reaching their state pension age from April 2017, so existing pensioners not included;
- the number of qualifying years an individual will need to build up to get the increased State Pension will increase from 30 to 35 years;
- a person will need to have at least 10 years of National Insurance contributions or NI credits in order to qualify for the new state pension;
- the payment will be based on individual qualification, without the facility to inherit or derive rights to the state pension from a spouse or civil partner;
- future rises in the state pension age will be linked to longevity;
- future increases in Basic State Pension will still be linked to triple-lock in that will increase the State Pension by the greater of price inflation, earnings growth or 2.5%
- still allow people to defer taking their state pension, though the lump sum option will no longer be available;
- We have assumed that any Defined Benefit pension income changes once in payment are in line with the Retail Prices Index.
- We have assumed that:
- you have no taxable income at retirement other than the total projected income;
- you are eligible for the standard single person's personal allowance for your retirement age, but not eligible for any other income tax allowances;
- tax rate thresholds increase each tax year from 2013/14 in line with inflation in the Retail Prices Index. 2013/14 is used as the starting point because 'Retirement Planner' is intended as a long-term projection tool and 2013/14 tax information is the latest available information we have.
- up to and including 5 April 2013, the amount of your personal allowance depends upon your age and income in the tax year. There are three levels of personal allowance; the basic personal allowance and two higher age-related allowances for those aged over 65 and 75. If you become 65 or 75 during the year to 5 April 2013, you are entitled to the full allowance for that age group. From the beginning of the 2013 tax year, the two higher age-related personal allowances have been frozen at 2012/13 levels. 'Retirement Planner' does not take account of the current differences in personal allowance levels and assumes all ages have the same personal allowance (£9440 for the 2013/14 tax year, assumed to increase each tax year in line with the Retail Prices Index).