How to estimate your future retirement income

A pension forecast will help you estimate how much state pension income you could receive when you retire. For personal and workplace pensions your annual statement will provide a projection of your likely retirement income.

Ruth Jackson-Kirby Published on 08 June 2021. Last updated on 09 June 2021.
How to estimate your future retirement income

When it comes to pension planning one of the most important things is to know how much income you could have when you retire. To do this you will need to get a state pension forecast and regularly read your private pension statements.

Forecasting your retirement income

The aim of a pension is to build a pot of money that will be enough to provide you with an income once you have stopped working.

Pension planning helps you keep track of how our pensions are growing and how much to put aside.

A key element of this is looking at the pensions you have to give you an idea of the pension income you could expect once you retire.

Checking your state pension forecast during your working life and paying close attention to your annual pension statements for any personal or workplace schemes you might have allows you to see if your retirement plans are on track and help you plan accordingly.

» COMPARE: Personal pension providers

How to forecast your state pension

We don’t all get the same amount of state pension when we retire. How much you will get depends on your employment history and how many years of national insurance contributions (NICs) you have made.

In order to get the full state pension, you need to have 35 years of NICs. That doesn’t necessarily mean you need to have been in full-time employment for 35 years. You can get national insurance credits (NICs) if you aren’t working for certain reasons and it is possible to buy NICs too.

The first step is to get a state pension forecast in order to see how many NICs you are expected to have when you reach state pension age and how much state pension that will entitle you to.

You can get a state pension forecast online at Gov.uk. You will need to have, or create, a Government Gateway account or use Gov.UK Verify to sign in. Once you’ve logged in, you’ll be told your state pension age and what state pension you are forecast to receive when you reach that date. It will also tell you what you will get if you make no more NICs and how many more years NICs you need in order to get the full pension.

Alternatively, you can apply by post using a BR19 form to forecast your state pension, or you can call the Future Pension Centre on 0800 731 0175 and they will post a pension forecast to you.

It is worth noting that your state pension forecast is not guaranteed as the laws surrounding the state pension could change in the future, and the forecast does not take account of any increase for inflation.

» MORE: How to plan for your retirement

How to find out your personal or workplace pension income

With the full state pension amounting to £9,339.20 a year (from 6 April 2021) you will most likely still need to have additional savings to fund your retirement. For most of us that means saving into a personal pension or workplace pension.

It is a good idea to keep checking on any personal or workplace pensions regularly. Each year you should receive an annual statement for your personal and workplace pensions which will include a projection of your likely retirement income. Otherwise, you can request one at any time.

Remember, if you change address, keep your pension provider updated to ensure that you receive your regular statements.

Your projected income for a defined contribution pension will be based upon:

  • The age you intend to retire
  • How much you have paid into your pension
  • How your pension investments have performed
  • What fees and charges you are paying

However, it is important to note that this is just an estimation and will be based on assumed rates of investment growth which cannot be guaranteed. Furthermore, it may well base its estimation on the full value of your pot, without any tax-free lump sums deducted.

The estimated retirement income is also likely to be based on the annuity income a pot that size could generate, which could arguably be misleading if you don’t plan to use an annuity.

With a defined benefit pension it will be calculated using:

  • The number of years you are expected to be in the scheme
  • Your expected final salary or career average salary
  • Your accrual rate

How to find lost pensions

When you are looking at your pension statements and working out what level of retirement income you are likely to have it is important you include all your pensions. According to the Association of British Insurers there are 1.6 million unclaimed pension pots in the UK with an average of £13,000 in each account.

It is easy to lose track of a pension. One of the most common reasons is you simply forget to update a pension provider with your new address when you move house.

The good news is finding any lost pensions is straightforward. The Pension Tracing Service can help you find out about old workplace and personal pensions. Once you have the right contact details you need to get in touch with them to see if they have an account in your name.

» MORE: How to find lost pensions

What if my projected income is disappointing?

If you are disappointed by your predicted retirement income there is plenty you can do to give it a boost.

You could:

» MORE: Pension planning tips to maximise your savings

Image source: Getty Images

About the author:

Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more

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