A pension forecast is one of the most useful tools if you’re planning your retirement.
It can give you an idea of the total income you’re likely to receive from both your state pension and any workplace and/or personal pensions.
Doing it well in advance of your actual retirement also gives you a chance to take action and increase your pension savings if necessary.
Here’s how to go about getting your pension forecasts.
What is a pension forecast?
A pension forecast is a broad overview of what you’re likely to receive from a pension scheme. You can get a pension forecast on any type of pension, regardless of whether it’s state, workplace, or private. Requesting pension forecasts for workplace and private pensions as well as state could give you a more rounded picture of your predicted financial situation after you retire.
As its name suggests, a forecast is an estimate of the amount you’re on course to receive, rather than a cast-iron report of your retirement income. Nevertheless, it’s still a useful tool that can help you devise a realistic budget or prompt you to increase the amount you’re saving for retirement.
Forecasting your state pension
The amount of state pension you’ll receive depends on several factors, including:
- When you were born - In 2016, the rules changed for pensioners born after 6 April 1951 (for men) and 6 April 1953 (for women).
- How many ‘qualifying years’ of National Insurance contributions you’ve accumulated – You need at least 10 years’ worth to claim any kind of state pension and at least 35 years to receive the full amount.
- Whether you ‘contracted out’ your pension – You chose to pay lower NI contributions by ‘contracting out’ of the old Additional State Pension, which existed before 6 April 2016.
- Any additional government pensions – If you’re entitled to additional pensions, such as the War Pension for service people injured before 2005, this could increase the amount you get.
The simplest way to check how much you’re on track to receive is to use the State Pension forecast tool. Anyone can use it, as long as they aren’t currently claiming state pension or have chosen to defer claiming it.
You can also find out when you’ll be able to start claiming and if there are any ways to increase the amount you get (such as making a voluntary national insurance contribution to make up for any missing qualifying years).
Forecasting a workplace pension
If you contribute to a workplace pension, it will be either a defined benefit/final salary or a defined contribution scheme. Those who are paying into a defined benefit or final salary scheme (generally reserved now for those in public sector jobs) can request an annual summary of their contributions. It can be difficult to get a forecast for these unless you’re near retirement, as the amount you receive will be determined by your final salary and how long you’ve worked for the organisation.
On the other hand, defined contribution schemes must send you an annual statement, which could include a forecast of how much your pension pot is likely to be worth. If you don’t receive this automatically, you can ask your employers or the company that operates the pension scheme to provide one. It will be determined by factors such as how much you’ve paid in, market performance and your predicted retirement age.
Forecasting a personal pension
People who have a personal pension (broadly defined as any pension that’s not a workplace or state pension) can request a pension forecast from their provider. You can find more detail about SIPP, Stakeholder and Personal Pensions here. But regardless of which type you’re paying into; you’re entitled to an annual summary and requesting a forecast from your provider.
Tracking down lost pensions
Throughout your working life, you may have opened a number of pension pots either through private or workplace pensions. And while there isn’t a limit to how many you can have; pension consolidation could save you money in management fees and allow you to transfer funds from frozen pensions (pensions you aren’t paying into anymore) somewhere else.
If you’re not sure how to access a frozen or lost pension, the UK Government’s Pension Tracing Service can help. They can help you find the right contact details that will allow you to access your workplace or private pension. All you need is the name of the employer or pension provider to get started (You can find out more about the best pension providers here).
How to work out your pension income
It’s tricky to predict your state pension, as your forecast is only ever an estimate of what you could receive. Ongoing policy changes and wider economic circumstances could affect the amount you actually receive. Still, the state pension forecast tool is a great place to start when calculating your pension income, particularly if you’re due to retire in the next few years. But as the state pension age is currently under review for future retirees, and inflation will likely alter the cost of living and subsequently pensions over the next few decades, it may not be the most helpful tool for younger people.
A private pension (i.e. workplace or personal) is easier to forecast. If you’re planning well in advance, take a look at our pension forecast calculator. You can see how far your current contributions could go and plan how much you need to be putting away each month to make sure you’re able to fund your retirement plans. Bear in mind that this too is only a guide, as it makes certain assumptions about pot growth and the stock market. But it is particularly useful if you want to compare the effects of things like different contribution levels and different retirement ages.
What else can I do to plan for retirement?
After working out your pension forecast, you may realise your projected retirement income won’t be able to fund the lifestyle you were hoping for in retirement. Planning your retirement is something that many of us don’t think about until it’s on the horizon, and it can be confusing working out just how to save most efficiently.
But, thankfully, it’s never too late to make positive financial changes that could allow you to enjoy more of what you love in later life. Speaking to a financial adviser will help you identify ways to maximise your money, even if you’re just a few years from leaving full-time work. They may also prompt you to rethink your planned retirement age and help you make sensible financial plans that will keep you financially comfortable once you retire.