84% of adults believe that providing the State Pension is an essential role for the government, according to Phoenix Insights. But how big a part will the State Pension play in your life? Recent analysis by Standard Life – part of Phoenix Group – could help give you an idea.
Where will my retirement income come from?
If you’ve had any personal or workplace pension plans over the years, part of your income will likely come from these when you retire. You can normally start taking your pension savings at age 55 (rising to 57 from 6 April 2028).
Most people can claim the State Pension when they reach State Pension age. This is currently 66, but it’s rising to 67 by 2028. And there are further age increases planned beyond this. To check when you can claim the State Pension, visit the government’s website.
The new State Pension can be claimed by men born on or after 6 April 1951 and women born on or after 6 April 1953. Whether you get it – and how much you get – depends on your National Insurance record. You can visit the government’s website for more information.
What proportion of my retirement income could come from the State Pension?
We’ve worked out the proportion of retirement income that could come from the State Pension for people with different sized pension pots.
Let’s say you’ve been saving into a pension plan and have £50,000 in your pot when you retire. With this, you could buy a guaranteed income for life (an annuity) that gives you an annual income of £3,326. Let’s also imagine you’re eligible for the full new State Pension, which will be £203.85 per week (£10,600.20 annually) for the 2023/24 tax year. In this example, the State Pension would account for 80% of your total retirement income.
Now let’s say you have £152,000 in your pot. With this, you could buy an annuity that gives you an annual income of £10,524. In this case, the full new State Pension could make up roughly half of your total income.
And with a pot of £500,000, you could buy an annuity giving you £35,243 per year. Here, the full new State Pension could make up 23% of your overall income – more than a fifth.
Remember, the income you get from any pension pots is subject to tax. The figures we’ve outlined are pre-tax figures.
|Retirement||Equivalent yearly income*||State Pension income**||Proportion of pension income that is the State Pension|
*The average guaranteed yearly income each pension pot can buy - using the MoneyHelper annuity tool
**Full single-tier state pension (rounded down to the nearest pound)
The yearly income figures here are example numbers only, and annuity rates change all the time. These calculations are from 2 February 2023.
Keep in mind that all sorts of things, like health factors, can impact annuities.
The annuity figures we’ve offered here have been calculated based on:
- The person getting a single income
- The annuity being on a level basis (so the income doesn’t increase with inflation)
- There being no guarantee period (so the income won’t continue after the person dies)
- The person having no medical conditions
What does this all mean for me?
These calculations could be relevant to you if you’ve chosen to buy an annuity with your full pension pot. Ultimately, the percentages show that the State Pension is likely to be extremely important in people’s retirement, no matter how big or small their pot is.
Your own pension pot(s) may have a different value to what’s shown above, and you might choose to take your pension savings in a different way. The numbers will look different if you go for another option instead, like taking lump sums or a flexible income (drawdown), for example. For more information on ways to take your pension money, visit our guide.
Overall, the State Pension could play a huge role in your life, so it’s helpful to know how it all works. For example, you can read our State Pension changes article for information on how to potentially boost your State Pension, changes that are coming in, and more.
Will the State Pension be enough?
Although very important, the State Pension alone probably won’t be enough to fund your retirement.
The new full State Pension for the 2023/24 tax year is still less than the minimum wage. So you might find there’s a significant gap between what you get from the State Pension and what you might want or need in your retirement.
According to the Retirement Living Standards, from the Pensions and Lifetime Savings Association, a ‘minimum’ standard of living in retirement could cost someone £12,800 a year. But a ‘moderate’ or ‘comfortable’ standard of living will be more expensive. So think about what kind of lifestyle you’d like in retirement. And be aware that to afford it, you’ll probably need another source of income in addition to your State Pension.
Having information about the State Pension is helpful when it comes to retirement planning in general.
Knowing that the State Pension alone may not be enough, for example, might influence how much money you decide to save into your personal or workplace pension plan each month. It’s important not to solely rely on the State Pension – and thinking about other sources of income and building up your pension savings could be very useful.
If you’re a Standard Life customer, you can check the value of your pension plans on your online account.
And if you want to know how much money you might have in your plans in the future, try our pension calculator.
The information here is based on our understanding in February 2023 and shouldn’t be taken as financial advice.
Standard Life accepts no responsibility for information contained on external websites. This is for general information only.
A pension is an investment and its value can go down as well as up and could be worth less than was paid in.