Not everyone receives the same sum of state pension upon retirement. The amount you are entitled to relies on your working history and the number of years you've made national insurance contributions (NICs).
To be eligible for the full state pension, a total of 35 years of NICs are necessary. However, you don't necessarily need to have been employed full-time for all these years. In some circumstances where you're not working, you can still earn NIC credits, and it's even possible to purchase additional credits in some circumstances.
The preliminary step is to acquire a state pension projection. This provides an estimate of how many NIC credits you'll have at state pension age, and how much state pension you'll be entitled to.
You can obtain your state pension projection on Gov.uk. To do this, you'll need to either log in or create a Government Gateway account, or use Gov.UK Verify to sign in. Once logged in, you'll be informed of your state pension age and the state pension you're projected to receive on reaching that age. The projection will also show what you will receive if you don't contribute any more NICs and how many more NIC years you need for the full pension.
Alternatively, to get a state pension forecast, you can either mail in a BR19 form, or contact the Future Pension Centre at 0800 731 0175 to receive a mailed pension forecast.
Bear in mind that your state pension projection isn't a guarantee, as future legislative changes to the state pension can affect it. Also, the projection does not account for any increases due to inflation.
Calculating your Retirement Income
With the full new state pension summing to £10,600.20 annually for the 2023/24 tax year, you may need additional savings to support your retirement. This might require setting money aside in a personal or workplace pension, or other saving arrangement.
It's recommended to regularly keep tabs on any personal or workplace pensions. You should get an annual statement outlining your projected retirement income for each of your pensions. If you don't, you can request one.
Your projected income from a defined contribution pension is determined by:
- Your planned retirement age
- How much you've contributed to your pension
- Performance of your pension investments
- Associated fees and charges
Remember, this is only a projection and is based on assumed investment growth rates, which aren't guaranteed. The projection might also consider the full value of your pot without deducting any tax-free lump sums.
The projected income is often based on the income an annuity could provide with a pot that size, which might be misleading if you don't plan on getting an annuity.
A defined benefit pension projection is calculated using:
- The number of years you're likely to be in the scheme
- Your predicted final salary or career average salary
- Your accrual rate
What to do if your projected income is lower than expected?
There are several actions you can take to enhance your anticipated retirement income if it disappoints you.
For instance, you can:
- Increase your contributions to your personal or workplace pension.
- Make single, lump-sum pension contributions from bonuses or inheritances
- Postpone your retirement.
- Review your pension investments.
- Purchase extra national insurance credits to augment your state pension.
This article should not be construed as a personalised recommendation. The most suitable solution for you will depend on your own personal circumstances. No action should be taken without seeking further formal advice.
MHA Moore and Smalley is the trading name of Moore and Smalley LLP. Moore and Smalley LLP is regulated by the Financial Conduct Authority, FCA registration number 448716.
