How much of your retirement income will come from the state pension?

id

• Analysis by Standard Life reveals the proportion of pension income that will come from the state pension for different sized pension pots
• £132.5k pot will lead to around 50% of retirement income coming from the state pension
• Standard Life offers key information about the state pension for those approaching retirement to be aware of

Analysis by Standard Life, part of Phoenix Group, calculates the proportion of pension income that will come from the state pension for people with different sized pension pots, highlighting the importance of different income streams in retirement, and how the state pension can play a significant role.

Someone reaching retirement aged 66 with a pot of £50,000 could buy an annuity that guarantees a yearly income of £3,600. As the full state pension currently pays £185.15 per week or £9,627,80 a year – this would mean that almost three-quarters (73%) of their total income in retirement will come from the state pension. A £132.5k pot would lead to approximately 50% of retirement income coming from the state pension. Meanwhile, someone with a pot of £200,000 would receive a yearly income of £14,650, meaning 40% of their total pension income would come from the state pension. For a person with a retirement pot of £500,000, the state pension would amount to a fifth (21%) of their total income. These figures demonstrate that the state pension plays a crucial role in supplementing people’s income in retirement, regardless of the size of their pot. It’s therefore important that savers understand what they could receive from the state pension, how they qualify, and when they can claim it.

^{*The average guaranteed yearly income each pension pot can buy - using the Money Helper annuity tool
** Full single tier state pension}

Jenny Holt, Managing Director for Customer Savings and Investments at Standard Life said: "Knowing what you will receive from your future state pension and how much of your total income it is likely to make up is an important part of retirement planning. Research from Phoenix Insights shows 84% believe that providing the State Pension is an essential role for the government, and clearly it can provide a vital amount of income for people in retirement.

"Bear in mind that any personal savings are likely be topped up by the state pension, and those with 35 years of qualifying National Insurance contributions can currently expect around £9,600 paid to them each year under the new state pension. The state pension age is currently 66, and is set to rise to 67 by 2028. If you’re planning to retire before this age, make sure you’ll have enough income from personal and occupational pensions or other savings and investments to plug the gap."

Jenny Holt outlines the basics about the state pension:

• What is the state pension? The state pension is an amount paid to you every four weeks by the government once you reach the state pension age. Not everyone can get the full state pension and it might not be enough to live on by itself. That’s why it’s important to know how much your state pension might be, when you can claim it and how it will stack up with your other retirement savings.
• What's the current state pension amount? The current full state pension amount is £185.15 a week for the 2022/2023 tax year. It’s worth keeping in mind that the amount you’ll get depends on your National Insurance record and how many qualifying years you have. You'll usually need at least 10 qualifying years on your National Insurance record to get any state pension. You’ll need 35 qualifying years to get the new full state pension if you do not have a National Insurance record before 6 April 2016.
• Changes to the state pension age? Your state pension age is the earliest age you can start receiving state pension. You can check your state pension age on the UK Government’s website. Men born before 6 April, 1951 and women born before 6 April, 1953 can claim the basic state pension now. If you were born on or after these dates, you’ll be eligible for the new state pension when you reach your state pension age. But state pension age is regularly reviewed to take into account things like affordability and life expectancy. State pension age rose to 66 last year and is set to rise to 67 by 2028 and to 68 between 2044 and 2046. Remember that modern, flexible workplace and personal pension plans normally let you start taking your money from the age of 55, rising to 57 in 2028. So, you could access your pension benefits before you receive your state pension.
• Is the State Pension likely to be enough? Probably not, but it is a very important income stream in retirement. Even with the government confirming the reinstatement of the Triple lock in November, which will increase the state pension in line with inflation for 2022/23 and take a full new state pension above £10,000 a year for the first time, it will still be a lot less than minimum wage salary. The reality is there’s a significant gap between what you get from the State Pension and what you may actually need or want in retirement. The state pension alone will only cover a very basic lifestyle and, because it only starts in your late 60s, won’t help to support you if you want to retire earlier- so it should only be a part of your overall retirement plan. It’s important to fully understand how much you might need to save into your personal or workplace pension plan to potentially be able to afford the retirement you want. The Retirement Living Standards tool from the Pensions and Lifetime Savings Association is a great place to start, clearly showing what life in retirement looks like at three different levels - Minimum, Moderate and Comfortable. As well as everyday costs, the tool factors in what’s needed for extras- gifts, holidays and large purchases etc., as well as the one-off expenses that come up through life.

ENDS

Enquiries

 
Notes to Editors

About Phoenix Insights

Phoenix Insights is a new think tank set up by Phoenix Group to transform the way society responds to the possibilities of longer lives. We will use research to lead fresh debate, prompt a national conversation, and inspire the action needed to make better longer lives a reality for all of us. The core of our work will look at financial security, work, and learning and skills, but we will also look at health and care, and homes and communities. Reimagining longer lives means making changes in all these areas. Some of our work will focus on the experiences of specific groups who face significant challenges. We also want to ensure that the ideas and solutions we advocate for contribute to a sustainable future for people and the planet. At the heart of all our work, we are committed to reducing inequalities and building a society that enables all of us, not just the fortunate few, to live better longer lives.

Phoenix Insights is led by Catherine Foot, a leading research and policy specialist in longevity and ageing who was appointed as the Director of Phoenix Insights in June 2021. Catherine has over 20 years of experience in the field. From 2015 to 2021, she was Director of Evidence at the Centre for Ageing Better. She has also held senior roles with The King’s Fund and Cancer Research UK. Catherine holds degrees from University of Cambridge and University College London.The think tank is supported by an expert advisory committee including Baroness Camilla Cavendish, Rt Hon Amber Rudd, Lord Victor Adebowale, Professor Lynda Gratton, Professor Sarah Harper CBE and Baroness Ruby McGregor-Smith CBE.

About Standard Life

• Standard Life is a brand that has been trusted to look after peoples' life savings for nearly 200 years 
• Today it proudly serves millions of customers who come to Standard Life directly, through advisers and through their employers' pension scheme.
• Standard Life is part of the Phoenix Group, the largest long-term savings and retirement business in the UK. We're proud to be building on nearly 200 years of Standard Life heritage together
• Our products include a variety of Pensions, Bonds and Retirement options to suit people's needs, helping our customers to invest and save for their future. We're proud to offer a leading range of sustainable and responsible investment options.
• We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs, and plan a future they feel confident about.
• The value of investments can go down as well as up, and may be worth less than originally invested.