
Your financial plan for retirement might include various savings, investments, and private or workplace pensions.
Yet, it’s important not to overlook the potential value of the State Pension, which could provide an important income stream after you leave work.
Indeed, the ongoing cost of living crisis could mean that you need more in your retirement fund than you expect. According to research published by PensionsAge, more than half of UK adults “dangerously underestimate” the cost of retirement.
On the other hand, building a clear picture of your retirement income – including your State Pension – could help you prepare for the lifestyle you desire in later life.
Read on to learn more about the State Pension and find out how valuable it could be by discovering the potential cost of generating this income independently.
29% of 55- to 64-year-olds don’t know how much they’ll receive from their State Pension
Research by Standard Life has revealed that a significant number of UK adults lack important knowledge about the State Pension, such as how much they’ll receive and when their payments will begin.
The study found that 24% don’t know their State Pension Age and 22% – rising to 29% for 55 to 64-year-olds – have no idea how much they’ll receive.
What’s more, 38% don’t know how to calculate their State Pension entitlement.
Yet, getting to grips with the State Pension could help you understand how it might stack up against your other retirement savings and investments. You might also be able to identify opportunities for boosting your State Pension entitlement (more on this later).
The new full State Pension will increase by 4.1% in April 2025
The Conservative-Liberal Democrat coalition government introduced the triple lock in 2010 – and implemented it in April 2011 – to guarantee that the State Pension will not lose value in real terms.
Under the triple lock arrangement, the State Pension is increased annually based on the highest of:
- Price inflation, measured by the Consumer Prices Index (CPI)
- Average earnings growth
- 2.5%.
The government has confirmed that the new State Pension will rise by 4.1% – in line with earnings growth – in April 2025.
According to figures published by the government, this increase will make the State Pension worth:
- £230.25 a week for the full, new flat-rate State Pension (for individuals who reached State Pension Age after April 2016) – an increase of £472 a year
- £176.45 a week for the old basic State Pension (for those who reached State Pension Age before April 2016) – a rise of £363 a year.
You may be entitled to a higher rate if you choose to defer your payments. Your State Pension increases by the equivalent of 1% for every nine weeks you defer, which works out at just under 5.8% every year.
The cost of generating the State Pension independently may be higher than you think
Calculating the cost of generating the State Pension yourself is a useful way to demonstrate its value.
Imagine that you retire at the age of 66 (the State Pension Age in 2024/25) and live to 86. Assuming you’re eligible for the full new State Pension after the April increase, you could receive:
- £230.25 a week
- £11,973 a year
- £239,460 over 20 years.
As you can see, the State Pension could make a considerable contribution to your retirement income.
Additionally, under the triple lock, the State Pension is guaranteed to rise each year to keep pace with the cost of living. Even if it only increased by the minimum 2.5% each year, this could still help your income keep up with the rising cost of living over time.
According to figures from the Office for National Statistics (ONS), the cost of living has risen across the world since 2022. In the UK, prices of consumer goods and services rose by 9.6% in the year to October 2022, which was the fastest rate in four decades.
While the rate of inflation has slowed in recent months, the cost of living crisis continues.
Indeed, in February 2024, the Pensions and Lifetime Savings Association
£11,973 a year could cover around a quarter of these costs if you’re single, and approximately 40% of your individual costs if you’re in a couple and both of you are eligible for the full entitlement.
To generate this level of income independently, you would need to accumulate a savings pot of £239,460 for a 20-year retirement.
This shows how valuable the State Pension could be and why its important to maximise your entitlement.
A key deadline is approaching for boosting your State Pension entitlement
Research published by Professional Paraplanner has revealed that 51% of UK adults who have yet to access their State Pension believe that everyone is automatically entitled to the full State Pension or are unsure who is entitled to it.
In fact, you need to have enough qualifying National Insurance contributions (NICs) on your record to receive the full amount – or any State Pension at all.
If you’ve had any periods when you weren’t paying NICs or receiving National Insurance credits – for example, if you took a career break to care for children or relatives – you could have gaps in your record.
Fortunately, you may be able to fill any such gaps by paying voluntary NICs.
Until 5 April 2025, you could potentially top up your NI record as far back as April 2006, provided you reached State Pension Age after 2016.
However, once this deadline passes, the normal rules – which only allow you to fill gaps in your NI record from the last six years – will resume.
So, if you want to make the most of your State Pension entitlement, now is the time to act.
Get in touch
If you’d like to know how we can help you plan for a financially stable and happy retirement, we’d love to hear from you.
To find out more, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
Approved by Best Practice IFA Group 15/01/2025