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Money, tax and benefits
How much income will you have in retirement?
As you approach retirement you'll need to look at a range of sources to estimate how much income you'll have. These include the State Pension, personal or company (occupational) pension schemes, state benefits you may qualify for on retirement and your savings or investments.
State Pension
If you're entitled to the basic State Pension you can claim it from State Pension age – even if you carry on working. State Pension age is currently 65 for men and 60 for women born on or before 5 April 1950. State Pension age for women born on or after 6 April 1950 will increase from 60 to 65 between 2010 and 2020.
The State Pension age will increase for both men and women from age 65 to 68 between 2024 and 2046.
The full basic State Pension is £90.70 per week in 2008-2009.
You may also be entitled to the additional State Pension (also called the 'State Second Pension' and previously called the State Earnings-Related Pension Scheme, or SERPS).
State Pension forecast
A State Pension forecast gives you an estimate of how much State Pension you may receive at State Pension age based on your National Insurance contributions to date and assumptions made around any future contributions you may make before you reach State Pension age.
Putting off your State Pension claim
Bear in mind that you don't have to claim your State Pension as soon as you reach State Pension age, whether or not you carry on working. If you put off claiming you can choose to receive a higher weekly amount or a lump-sum payment plus your normal State Pension.
Annual benefit statements for your personal or company pensions
The trustees or managers of personal and some company pension schemes must send you a statement each year about your pension.
If you have a defined benefit (salary-related) company pension you can request an annual statement but some companies will send them automatically. If you have a defined contribution (non salary-related) company pension you must receive an annual statement. For defined contribution schemes the statement may include a forecast of how much you could get when you retire. If a forecast isn't included you can ask for one.
Personal pension or non salary related company pension
The amount you'll get from your personal pension and any non salary related ('money purchase') company pension will depend mainly on:
- how much you've paid in and how well it was invested
- the age at which you retire
- whether you make provision for a survivor's pension
Salary related company pension
The amount you'll get from a salary related company pension will depend on:
- the number of years you've been a member of the scheme
- your salary – usually when you retire or leave the scheme
Whatever type of scheme you belong to, you may be able to take part of the fund as a tax-free lump sum. However, if you do this it will affect the amount of your pension.
Tracing a personal or company pension
The Pension Tracing Service is a free service that may be able to help you find an old company or personal pension scheme that you’ve lost touch with.
You can call the Pension Tracing Service on 0845 6002 537 (+44 191 218 2466 from outside the UK), or textphone 0845 3000 169. Lines are open Monday to Friday 8.00 am to 6.00 pm. You can also complete a tracing form on The Pension Service website.
Benefits from retirement age
The government offers various kinds of financial support for those in retirement - it's worthwhile finding out if you will qualify. Some are income related, some are not.
Pension Credit
Pension Credit is especially important if you're 60 or over and living in Great Britain. It guarantees a minimum weekly income (2008-2009) of:
- £124.05 if you are single
- £189.35 if you have a partner
If your income in retirement is less than this, you can get top up payments to bring you up to the guaranteed level.
Other income-related benefits
You may also be entitled to other income-related benefits including:
- Council Tax Benefit
- Housing Benefit
- Cold Weather Payment
- help with funeral costs
- help with health costs
Benefits not related to income
Some benefits are available whatever your income, including the Winter Fuel Payment, disability payments, attendance allowances and bereavement benefits.
Income from other sources
Long-term savings and investments you have can provide extra income in retirement, but when taking these into account bear in mind that:
- savings interest rates can fall as well as rise
- the return on investments is not guaranteed
- your investments will need to match your particular needs
- some investment and savings products are more tax efficient than others
When reviewing or taking out investments consider getting advice from an authorised financial adviser – you have less protection if you buy without taking advice.
Tax in retirement
Bear in mind that when you retire you still pay Income Tax if your taxable income is more than your allowances. Income from pensions (including the State Pension) is also taxable. However, your personal allowance increases and you don't pay National Insurance contributions after you reach State Pension age, even if you carry on working.
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