How Much Income Will Your Pension Actually Give You?

For many people, the State Pension will be an important part of their retirement income.

It’s a regular payment from the Government that you can usually claim when you reach State Pension age. The amount you receive depends largely on your National

Insurance record – in other words, the record of contributions and credits you’ve built up through working or other circumstances such as receiving Child Benefit for a child under the age of 12 or being in receipt of Carer’s Allowance.

You don’t necessarily need to have worked for your entire adult life to qualify, but you’ll generally need at least 10 qualifying years on your National Insurance record to receive any new State Pension.

You usually need 35 qualifying years for the full amount, although your circumstances and when you reached State Pension age can affect this.

How to find out what you could receive

The easiest way is to check your State Pension forecast via the UK government website here: Check your State Pension Forecast

This free service tells you:

• How much State Pension you could receive
• When you can claim it
• Whether you might be able to increase your forecast by filling gaps in your National Insurance record

Make a note of the amount and the age at which you’re expected to receive it. If you plan to retire before State Pension age, remember that you’ll need another source of income to cover the gap.

One important point: the State Pension is usually paid every four weeks, rather than monthly. For your retirement budget, it’s helpful to convert the annual amount into a monthly figure.

Your State Pension is only part of the picture if you also have money in workplace or personal pensions.

If you’ve changed jobs over the years, you could have several different pension pots.

It’s worth tracking them all down before trying to estimate your total retirement income.

It’s important to understand that there are two main types of pension you could be enrolled in.

Defined Contribution pensions

These are often called DC pensions. They include most modern workplace pensions and many personal pensions.

Money is paid into your pension by you, your employer or both. It is invested, with the aim of growing over time.

The amount you eventually have depends on how much has been paid in, how your investments perform and the fees charged by your pension provider.

With this type of pension, you build up a pot of money that you can use to provide an income in retirement.

What to do if you have a DC pension: Check your latest pension statement or log in to your pension provider’s website.

Look for the current value of your pension pot and any estimates of the retirement income it might provide.

Defined Benefit pensions

These are also known as DB, Career Average, or Final Salary pensions, and some older workplace pensions are arranged this way.

Rather than building up a pot of money that you use to fund your retirement, your scheme promises to pay you a pension based on factors such as your salary, how long you were a member and the scheme’s rules.

Your pension statement should give you an estimate of the annual income you could receive.

What to do if you have a DB pension: Contact your pension scheme or check your latest statement. Look for the estimated yearly pension and the age at which it becomes payable.

If you have both types of pension, make sure you include both in your calculations.

It’s surprisingly easy to lose sight of a pension when you change jobs, move house or forget which provider your employer used.

If you think you might have an old pension somewhere, don’t leave it out of your calculations.

Start by checking old paperwork, payslips and emails. You could also contact previous employers to ask which pension scheme they used.

The Government’s Pension Tracing Service can help you find contact details for pension schemes you already know about. It won’t tell you how much money you have in a pension, but it can help you track down the provider so you can ask for that information.

If you want a service that can find your lost pensions, contact the providers for you and tell you how much you have, try using our free pension tracing service in partnership with Gretel.

Using this service also allows you to consolidate all your various pension pots into a single one for simplicity.

If you have a Defined Contribution pension, knowing how much money is in your pot is a useful starting point. But it doesn’t tell you exactly how much income you’ll receive.

That’s because you usually have a choice about how to use the money.
There are three main options to understand.

Option 1: Buy an annuity

An annuity is a financial product you buy with some or all of your
pension pot in exchange for a regular income.

A lifetime annuity can pay you a guaranteed income for the rest of your life. The amount depends on factors including how much you use to buy it, your age, the options you choose and the rates available at the time.

For example, you might use part of your pension to buy an annuity that pays you a set amount every year.
You can usually choose whether the income stays the same or increases over time.

You may also be able to arrange payments for a spouse or partner after your death. These features can affect how much income you receive.

The main advantage is certainty: with a lifetime annuity, you know how much income you’ll receive under the terms of the policy.

The trade-off is that you generally can’t change your mind and get the money back once you’ve bought it.

Option 2: Keep your pension invested and take money out as you need it

This is known as pension drawdown.

Instead of exchanging your pension pot for a guaranteed income, you leave your money invested and withdraw amounts from it over time.

You might choose to take a regular monthly income, for example, or withdraw extra money when you need it.

The advantage is flexibility. Your remaining pension money can continue to grow if your investments perform well.

However, its value can fall as well as rise. If you withdraw too much, or your investments perform poorly, your pension could run out sooner than expected.

Unlike a lifetime annuity, drawdown doesn’t guarantee you an income for life.

Option 3: Take your pension in lump sums

You may be able to withdraw money from your pension in separate lump sums, rather than setting up a regular income.

Depending on how you take it, part of each withdrawal may be tax-free, with the remainder subject to income tax.

You’ll need to plan carefully to avoid taking out too much too soon and losing more than you need to in tax.

What about tax-free cash?

With Defined Contribution pensions, you can usually take up to 25% of your pension as tax-free cash, up to a maximum amount, which is currently £268,275 in total across all your pensions.

You don’t have to take the full amount, and you don’t necessarily have to take it all at once.

But remember: money you take out as a lump sum is no longer available to provide future pension income. If you take a large amount at the start of retirement, the money remaining to fund your later years will be smaller.

Combining approaches

You don’t need to pick just one of the above options: it’s possible to combine approaches. For example, you might use part of your pension to secure a guaranteed income and leave the rest invested for flexibility.

Now you can start bringing all these figures together.

• You’ll need to include income from all the sources you know about:
• Your State Pension
• Any Defined Benefit pensions you’re enrolled in
• Any Defined Contribution pensions you’re enrolled in
• Any income from savings or investments outside your pension that you’re building up

If you think there may be other potential sources of income available to you at retirement, you may want to also include these. Income such as:

• Earnings from part-time work
• Rental income

• Inheritance

Now, the next part of the calculation isn’t simple and includes many factors that are uncertain, such as life expectancy and the performance of the markets. Sadly, there is no crystal ball to predict these things precisely so you’ll likely need to base some elements of these calculations on reasonable assumptions instead.

To calculate your likely annual income in retirement:

• Estimate when you plan to retire. The earlier you stop working, the longer your money may need to last. Remember to check when you can claim your State Pension, as you will need other income to cover the gap if you plan to retire before then.
• Consider how long your retirement might last. Without knowing exactly how long you’ll live, it’s sensible to plan for the possibility of a long retirement. As a starting point, you might test whether your savings could support you until age 90 or 95, rather than relying on average life expectancy. A financial adviser can help you explore different scenarios and decide what assumptions are appropriate for your circumstances.
• Work out how you plan to take any Defined Contribution pensions. You might use some or all of it to buy an annuity, which can provide a guaranteed income for life, or leave it invested and withdraw money gradually. These approaches provide different levels of certainty, flexibility and risk, so this needs careful thought – and potentially the help of a professional IFA.
• Add together your estimated annual income from all sources. Include your State Pension, any personal pensions and your estimated income from any other savings, investments or other sources. Your pension providers may be able to give you a forecast, or you can use our free pension calculator to explore how your savings could grow. Remember that investment growth isn’t guaranteed, and the value of your pension could fall as well as rise.
• Compare your expected income with your likely spending. Estimate how much you’ll need to cover essential bills and how much you’d like to spend on things such as holidays, hobbies and helping family. This will help you see whether your retirement income is likely to meet your needs, or whether you may need to save more, work for longer or adjust your plans.

Of course, how much you spend every year in retirement will be personal to you. But it can help to know about the Retirement Living Standards, originally developed by the Pensions and Lifetime Savings Association (PLSA), now known as Pensions UK. They set out how much money people might need for three different lifestyles in retirement: minimum, moderate and comfortable.

Note: These estimates do not include housing costs.
Source: Pensions UK Retirement Living Standards, 2025 update.

It’s sensible to test different scenarios, including the possibility that you live longer than expected or your investments perform less well than you’d hoped.

If you are struggling with what are, after all, very complex calculations, turn to an Independent Financial Adviser (IFA) for help.

A good IFA will advise you on how to turn your pension savings into a sustainable retirement income, help you explore all your options and develop a plan suited to your circumstances.

The figures you’ve added together so far are likely to be before tax. But what matters when planning your lifestyle is how much money you’ll actually have available to spend.

You may need to pay income tax on some of your retirement income, depending on your total income and the tax rules that apply to you.

Your tax bill will depend on your circumstances, including any other income you receive, your available allowances and where in the UK you live.

For tailored tax advice, speak to an Independent Financial Adviser. But the following figures may help you to estimate your own potential tax bill:

Key UK Tax Rules for Retirement (2026/27)

• Personal Allowance: The first £12,570 of your total annual income is tax-free.
• State Pension: The new State Pension is around £12,547 a year (£241.30 a week), meaning it sits just below the tax threshold on its own, though any additional income will push you into paying tax. For now, the government has committed to ensuring anyone who receives just the State Pension will not pay tax on it, even when it crosses the £12,570 threshold as it is expected to do from April 2027.
• Private pension withdrawals: Typically, up to 25% of a Defined Contribution pension pot can be taken tax-free (subject to the lump sum allowance cap of £268,275), while the remaining 75% is taxed as ordinary earned income.
• Income tax Bands (England, Wales, and Northern Ireland)

10% (Personal Allowance): Up to £12,570
Basic Rate (20%): £12,571 to £50,270
Higher Rate (40%): £50,271 to £125,140
Additional Rate (45%): Over £125,140
(Note: Income tax rates and bands differ if you live in Scotland)

You now have an estimate of how much money you might receive and how much you might spend. The next question is whether it will be enough. Don’t panic if it doesn’t look like it will be. Knowing this in advance gives you time to consider your options. You might decide to:

• Increase your pension contributions while you’re still working.
• Work for a little longer before retiring.
• Review your planned spending.
• Check whether you have other savings or investments that could help.
• Explore whether you can improve your State Pension entitlement.

You don’t necessarily need to make drastic changes. Even small adjustments, made early enough, can help you build a more secure retirement plan.

Take this first calculation as a starting point that you can refine as you get closer to retirement.
The earlier you understand where you stand, the more time you have to make changes if you need to – and the more confident you can feel about the years ahead.