Planning for retirement can be complicated, as there’s not only lots of jargon to get to grips with, but it’s often tricky to work out when you’ll be able to afford to retire – and how much you should be saving.
With this in mind, we’ve pulled together some of the most common pension questions and answers to help you navigate the pension landscape.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
Contents
- How much do I need to retire?
- What happens to my pension when I die?
- Is inheritance tax payable on pensions?
- How much should I save for retirement?
- How does the State Pension work?
- How can I boost my retirement income?
- How much pension can I take at 55 tax-free?
- How much is the State Pension?
- Is it worth paying to top up your State Pension?
- Deferring your State Pension: how much do you get and is it worth it?
- Can my husband or wife pay into my pension or can I pay into theirs?
1) How much do I need to retire?
The amount you’ll need to fund your retirement depends on a range of factors, including when you plan to retire, what sort of lifestyle you want, and how much you’re likely to receive from the State Pension.
According to the Pensions and Lifetime Savings Association’s (PLSA’s) latest Retirement Living Standards research, the cost of a minimum standard of living in retirement has increased by around 16% from £12,800 to £14,400 in 2024 for a single person, and by 8% from £19,900 to £22,400 for a couple.
A minimum lifestyle includes a budget of £50 on a weekly food shop and a week long holiday in the UK. However, it would not provide enough to pay for a car, but it does include a budget of £10 per week for taxis, and £100 per year to spend on rail fares. If your target is a minimum retirement, then for most of us, our private and state pensions (the full state pension for 2024-25 is £11,500 per year), and other savings should help cover most of these costs.
The amount of income needed for a moderate standard of living in retirement is £31,300 in 2024 for a single person, the PLSA said, and £43,100 for a couple. This includes the cost of running a car, longer holidays abroad and increases the amount spent on basics such as food.
If you want a comfortable standard of living, which would provide you with more financial freedom and a few luxuries each year, such as a fortnight 4* holiday in the Mediterranean with spending money, and three long weekend breaks in the UK, a single person would need £43,300 a year to fund this kind of lifestyle, according to the PLSA. This would require them to have annual income (before tax) of £39,387 per year on top of the state pension. Find out more in our articles Can you afford to retire? And How much should I save for retirement?
2) What happens to my pension when I die?
Under current rules, If you have a defined contribution pension and you die before you reach the age of 75, you can usually pass your pension tax-free to a nominated beneficiary. If you have not started taking money from your pension this can be taken as a lump sum payment.
If you were taking an income from your pension using flexible drawdown or flexi-access drawdown at the time, your dependents can receive a tax-free income from the remainder of your pension.
If you’re over the age of 75 when you die your pension pot will still transfer tax-free, but your dependents will have to pay income tax at their marginal rate of income tax, on any income they receive from it, in the same way as you would have.
3) Is inheritance tax payable on pensions?
It isn’t at the moment, as pensions currently aren’t considered part of your estate for inheritance tax purposes.
However, the rules are set to change from 2027, when for the first time pensions will fall into the scope of inheritance tax. These changes were announced in the Budget 2024. The new rules mean that retirees who may have previously prioritised using other savings and assets to fund retirement before their pensions may now decide to review their choices. For example, they may instead choose to look at ways to make use of available gifting allowances to pass on wealth to their loved ones now, so that they don’t leave them facing a hefty tax bill later on. Learn more in our guide Can my pension be used to reduce Inheritance Tax?
If you’ve used, or are planning to use, some or all of your retirement savings to buy an annuity or income for life from an insurance company, this income will usually stop when you die, although some types of annuity can continue to provide an income for a dependent. When the inheritance changes are introduced, this means that annuities may become a more popular option for those looking for a guaranteed income in retirement. Learn more in our guide Is now a good time to buy an annuity?
If you die while you’re paying into a final salary or defined benefit pension, your scheme will usually pay out a lump sum to your beneficiaries, which may typically be two or three times your salary. The scheme may also provide contributions made into the scheme as a lump sum. Final salary pensions must by law offer benefits to a surviving widow or widower if you die after reaching the scheme’s pension age. Find out more in our guide What happens to my pension when I die?
4) How much should I save for retirement?
It can be really difficult to work out how much you should be saving into your pension. Many people in workplace pensions simply pay the minimum amount permitted under auto-enrolment rules, even though this is unlikely to provide them with anywhere near the amount they’ll need to enjoy a comfortable retirement.
One method commonly used to help you decide how much you should be putting away is to take your age, halve it, and then contribute this percentage of your salary to your pension every month for the rest of your working life.
If, for example, you’re aged 50, you should aim to save at least 25% of your salary before it’s taxed every month until you retire. That means if you’re earning £2,000 a month, you should ideally pay £500 of this a month into your pension (25% of £2,000) until you reach retirement. Learn more in our article How much should I save for retirement?
5) How does the State Pension work?
The State Pension is likely to form the cornerstone of your retirement planning, and thanks to the pension triple lock, it has seen some generous increases in the past couple of years.
There are two types of State Pension depending on when you were born, the new State Pension and the basic State pension. If you’re a man born on or after 6 April 1951, or if you’re a woman born on or after 6 April 1953 new State Pension rules will apply to you. However, if you’re a man and were born before 6 April 1951, or if you’re a woman born before 6 April 1953, you’ll likely be claiming the basic State Pension already.
You’ll only be able to get the maximum new state pension if you’ve made 35 ‘qualifying years’ of National Insurance Contributions, and you’ll usually need at least 10 ‘qualifying years’ to get any State Pension.
However, bear in mind that having 35 qualifying years will only result in your receiving the full new State Pension if you have no National Insurance record prior to the 2016/17 tax year. Most people will have made National Insurance contributions before 6 April 2016, in which case transitional arrangements apply, so as not to disadvantage those who reached pension age before the new State Pension was introduced. This means that it is not uncommon for people with more than 35 qualifying years not to receive the full amount (as the changes only came into effect from 2016/17). Learn more in our guide to How the State Pension works.
If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.
Alternatively, if you’d like advice on your private pension, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Please note that Fidelius can discuss private pensions, but is not able to advise on the State Pension and defined benefit / final salary (e.g. NHS) pensions.
6) How can I boost my retirement income?
If you’re worried that your pension won’t provide you with enough income in retirement, there are various ways you may be able to bring in a bit of extra money.
A good starting point is to check you’re claiming all the government benefits you’re entitled to, such as Pension Credit. The Guarantee Credit part of Pension Credit, for example, tops up your income to a guaranteed weekly amount, which in the 2024/5 tax year is £218.15 if you’re single, or £332.95 if you’re in a couple. These payments will rise to £227.10 and £346.60 respectively from April 2025. Find out more in our article Pension Credit explained.
Another way you might be able to give your retirement income a boost is by renting out a spare room in your home if you have one. You can earn up to £7,500 a year tax-free under the government’s rent a room scheme. You can also rent out free space as storage, or a parking space, or you may also have unused or unwanted items in your home that you can sell. You can find plenty more ways to make extra income in our article 24 ways to earn extra money and boost your income.
7) How much pension can I take at 55 tax-free?
You can usually withdraw up to 25% as a tax-free lump sum from a defined contribution pension once you reach the age of 55 (rising to 57 in 2028), but the rest will be treated as income for tax purposes.
It’s worth noting if you have a particularly large pension, that there is a maximum tax-free lump sum you can take, and this is linked to the previous Lifetime Allowance which was scrapped in April 2024.
Put simply, you can take out up to 25% of your pension up to a maximum of £268,250 (25% of the old £1,073,100 Lifetime Allowance). If you have more than £1,073,000 in your pension, then the tax-free element you can take will be less than 25%. Find out more in our article How much tax-free cash can I take from my pension?
If you have a defined benefit, or final salary pension, you’ll typically be able to take a tax-free lump sum from this too. You can ask your pension scheme for more details on the exact amount, and beware that the larger the lump sum you take, the less you are likely to receive as a guaranteed income when you stop working. Learn more in our article How much tax will I pay when I withdraw my pension?
8) How much is the State Pension?
The State Pension rises each year, in line with the government’s triple lock guarantee.
The new full State Pension is currently £221.20 a week and this will rise to £230.30 a week in the 2025/26 tax year, representing an annual increase of £473, although the amount you’ll personally receive will be based on your National Insurance Contribution record.
The full basic State Pension is currently £169.50 a week, and this will increase to £176.45 at the start of the new tax year on April 6, adding £361 on to annual payments. Read more in our article What will the State Pension be in 2025?
9) Is it worth paying to top up your State Pension?
Buying missing years in your National Insurance record could potentially boost the amount of State Pension you receive in retirement.
If you’re a man born after 5 April 1951 or a woman born after 5 April 1953, you have until the 5th April 2025 to pay voluntary contributions to make up for gaps in your NI record between 2006 and 2016. After this date, the number of years you can buy falls to the last six years, so if you have missing years from decades ago you won’t be able to make these up.
The deadline was previously set for the end of July 2023, but the government’s service was overwhelmed by people wanting to top up their records, so they agreed to extend the deadline to give people more time. Read more in our article Deadline to boost State Pension extended to April 2025.
Buying extra years involves paying what are known as ‘voluntary class 3 NI contributions’, and the rate is currently £907.40 for a full year (£17.45 per week), which will boost your State Pension by around £302 a year (£5.82 a week).
The government has introduced a new online service to make it easier for people to make voluntary national insurance (NI) contributions if they want to boost their State Pension. The tool can be accessed at GOV.UK and you’ll need your Personal Tax Account log in details. If you don’t have an account with HMRC, you can register for one here. You won’t be able to use the tool if you’re already claiming your State Pension or if you want to fill gaps from when you were self-employed or working overseas. Learn more in our article Is it worth paying to top up your State Pension?
10) Deferring your State Pension: how much do you get and is it worth it?
If you don’t need to claim your State Pension at State Pension retirement age, perhaps because you have other income to tide you over financially for the time being, you might be considering deferring your State Pension.
You don’t need to do anything to defer taking your State Pension, it will automatically be deferred if you don’t claim it, for as long as you want. For every nine weeks that you defer claiming your pension, your weekly payments will rise by 1% to make up for the money that you’ve missed out on. This means that if you defer payments for a year then you’ll see an increase of nearly 5.8% in your weekly payments for the rest of your life.
Deferring your State Pension is a very personal decision, and won’t be right for everyone. The most important things that you need to consider are life expectancy, tax implications and the impact on any other benefits you are receiving.
If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased, or for more information check out our guide on How to find the right financial adviser for you.
Alternatively, if you’d like advice on your private pension, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor.
Fidelius are rated 4.7 out of 5 from over 1,250 reviews on VouchedFor, the review site for financial advisors. With your free consultation, there’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Please note that Fidelius can discuss private pensions, but is not able to advise on the State Pension and defined benefit / final salary (e.g. NHS) pensions.
11) Can my husband or wife pay into my pension or can I pay into theirs?
The short answer is yes. Anyone can set up a personal defined contribution pension, such as a stakeholder or self-invested personal pension (SIPP), and pay into it for someone else – so you don’t have to be married or in a civil partnership to contribute to a pension for another person. You can learn more about how SIPPs work in our article Everything you need to know about SIPPs.
If you pay into someone else’s pension, tax relief is paid at the rate of the person who owns the pension. That means that if, for example, you are a higher rate taxpayer and your husband is a basic rate taxpayer, and you paid into his pension, you would only get tax relief at the basic rate. You can also pay into a pension on behalf of a child or grandchild if you want to. You can pay up to £3,600 a year into a Junior SIPP in both the 2024/25 and 2025/26 tax year (of which you’ll contribute £2,880 and the government £720 in tax relief), and you have until the end of the tax year on 5 April to use this annual allowance.
By contrast, you can pay in up to 100% of your earnings every year to an adult SIPP and qualify for tax relief on your contributions up to a maximum of £60,000, known as your annual allowance.
Find out more in our guides Can my husband or wife pay into my pension? and Should I start a pension for my child or grandchild?
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
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