Pension income planning

Your guide to income in retirement

There are now more ways than ever to set up an income for your retirement – but this has also meant that pension income planning has become more complex, with more to consider. So, when making decisions about your long-term future, it’s important to be aware of the rules and tax implications , as well as the different ways you can generate an income in retirement.  

Currently, you can start drawing your pension at the age of 55, or earlier if you have a protected low pension age or are in poor health. However, in 2028 the minimum pension age is likely to rise to 57.

When you start to plan your pension income, carefully consider all the options available to you. Each option could have a different effect on your retirement lifestyle, the tax you'll have to pay and the amount your family could inherit.

Use our simple pension income calculator to see how much you earn in retirement.

Calculating your retirement income – where to start

Your pension income – the amount you need to live on in retirement – will depend on the amount you've put aside over the years, so start by working out all the sources of income you have access to. For example:

• Occupational pensions paid by a previous employer or pension company
• Personal pensions, e.g. a self-invested pension plan (SIPP)
• Investments, e.g. bonds, shares or stocks and shares ISA
• Savings, e.g. cash ISAs or deposit accounts

The total of all the above makes up your pension pot.

Will the size of your pension pot affect your state pension?

Your entitlement to a State Pension isn't affected by whatever you've saved or built up in your pension pot. You can claim it when you reach the legal State pension age. This will depend on your gender and the year you were born. You can also choose to defer your State Pension if you are still working and don't yet need the income.

Once you've reached State Pension age, there are several factors that will determine how much you get, including the number of years you paid National Insurance contributions, or received National Insurance credits, and whether you've chosen to defer it. Use the Government’s calculator to find out when you're eligible to start taking your State Pension and how much money you might receive.

Pension income planning – countdown to retirement

If you’re not planning on retiring for some time, it's worth reviewing your pension plans now to ensure you are in the best position. Quite simply, the earlier you begin, the more pension income you could generate and the more comfortable your retirement could be.

Here are some tips on what to consider when making your final preparations over the 12 months before ‘R’ day: 

1. 12 months to retirement

• Review all your personal finances, savings and outgoings such as the mortgage.
• Track down all your pensions – if you’re not sure where they are, try the free Pension Tracing Service .
• Consider what retirement income you will need.
• Decide whether you will be fully retiring or taking part-time work.
• Ask your pension provider(s) what the value of your pension fund is.
• Start to shop around and compare annuities , to give you an idea of what is    available.
• Plan what you will do with your newfound freedom.

2. 6 months to retirement

• Your pension provider(s) will write to you and give you a valuation of your pension pot and your options, including offering you an annuity.
• However, you are under no obligation to take out your pension from this company. You may choose to do your own research and compare all the options available to you before accepting their offer. Use our Annuity Calculator for expert guidance on your options.
• Remember, you are entitled to take up to 25% of your pension pot as a lump sum to do whatever you wish; take a holiday, pay off debts, make home improvements. It’s entirely up to you.
• If you would like to discuss your pension income plans, Age Partnership’s award-winning retirement planning experts are on hand to talk you though your options and find the best rates for you.

3. 3 months to retirement

• You will probably receive another letter from your existing pension scheme provider detailing your benefits and options.
• If you have several pensions, contact the various pension providers (if they haven’t already contacted you). You're likely to get a better pension income if you add them altogether, so get quotes based on the total amount.
• If you are not yet receiving it, make enquiries about your State Pension.
• You may want to contact a retirement income specialist such as Age Partnership to run through your final options. 

4. One month to retirement

• Compare annuity rates for the final time, adding any additional options you require.
• Use our quick and easy annuities calculator to see how much extra retirement income you could get.
• If you want more information, the experts at Age Partnership are on hand to help – and you can then also apply for your chosen annuity through Age Partnership. 
• Your retirement planning is now complete – have a party and enjoy the rest of your life!

It is also worth referring to the Government’s Pension Wise website for many useful insights into how pensions work and your pension income options.