Your Essential Pension Guide: Information, Annuities & Options for Pensioners

For most people, the state pension alone will not provide enough income to fully support retirement. That means you will also need to draw income from additional sources.

If you’re approaching retirement, then one source available to you will probably be your workplace pension; alternatively, you may have been paying into a private pension fund. The introduction of pension freedoms over the past few years has given retirees more flexibility, but also more decisions to make.

We’ve pulled together a summary of some of the most important information - including links to other relevant resources - to help you make an informed choice.
 

What is my pension pot worth?

This depends on several factors, including how much you’ve paid into your pension pot, how long you’ve been paying in, and how it has grown over time.

In order to check your pension pot, you will need to look at your yearly pension statement or, if you are less than 4 months from retirement, your welcome pack.

Haven’t received one? In that case, you should contact your pension provider directly.
 

How long does a pension need to last?

With people living longer than ever, your pension savings will need to stretch further in retirement. A key question is how long your pension should last to align with your life expectancy.

The Office for National Statistics provides a life expectancy calculator. You can use it to produce a rough estimate of your life expectancy. The calculations have been based on national averages, meaning these figures are, as we say, a very rough estimate. But it’s useful nonetheless, even to provide something of a reality check.

If your life expectancy is higher than you expected, we recommend thinking about how to make your pension last longer. That might mean better budgeting or looking for additional sources of cash.
 

What does a pension annuity offer?

By buying a pension annuity, you can convert your pension savings into a regular income. Usually this will be for the rest of your life, although it is also possible to buy a fixed term annuity which will last a set number of years. A fixed term annuity is an investment; as with any investment, the value of your fund can go up and down and may be worth less than what you paid in.

This gives you the security of a regular income, which can be very reassuring when it comes to budgeting your expenses and knowing how much money you will have in the years to come.

There are advantages and disadvantages of buying an annuity, and you should explore the alternatives before making any decisions. Inflation can reduce the buying power of any income that you are receiving over time. To offset the effects of inflation you could add an escalation to your plan.
 

How long will my retirement income last?

This is a big question – perhaps one of the most important – and the answer will depend on the total amount that you have available and your retirement lifestyle. It is a good idea to take some time putting together a retirement budget so that you can work out how much monthly income you will need.

If you are considering taking your pension as a lump sum, then this is something that you should think about carefully: do you have a strategy for making your money last? It’s important not to underestimate your life expectancy.
 

Will a pension lump-sum be taxed?

The first 25% of any pension lump-sum that you take out will usually be tax-free. If you choose to take a series of smaller lump-sums then 25% of each withdrawal will be tax free. The rest will be taxed as additional income, and can sometimes cause you to be taxed at a higher rate (up to 45%).
 

Can I withdraw my pension?

Since April 2015, there has been more freedom over how you can take your pension pot, with a range of options available – including withdrawing the entire amount as a lump-sum (the first 25% is tax free).

If you are interested in this option, you need to be aware of the risks: withdrawing your pension and spending it too early could cause you to struggle later in your retirement. You can also use your pension pot to take smaller lump sums as and when you need them, leaving the rest to continue growing.
 

What happens to my pension if I die?

This will depend on the type of pension as well as the age at which you pass away. The government’s pension wise service has detailed information available here, which should help you understand if and how your loved ones will be able to benefit.
 

Is my pension safe?

News about pension schemes collapsing or being underfunded can be scary, but the truth is that your pension has more protection than you may think. In our article ‘How safe is your workplace pension?’ we take a deeper look at the different types of pension protection, and how they might apply to your pension fund.
 

Can I take my pension and still work?

Plenty of people choose to work beyond retirement age, for a wide range of different reasons – and in many cases you will also be able to claim some pension income.

• You can claim your state pension once you reach the eligible age regardless of whether you are retiring from work. Once you reach state pension age, you also stop making National Insurance payments regardless of your employment status.
• You can claim a workplace or private pension once you’ve reached the age agreed with the pension provider – again, this is regardless of your employment status.
• The pension that you draw will be taxed as part of your income. Be aware that it may cause you to pay tax at a higher rate.

 

 

Where can I get more pension information?

Pension Wise is a free service from the government, and it’s a great first port of call for anybody who wants to know more about their pension options. It’s important to seek professional advice before making any long-term decisions.
 

Pension Guide FAQs

 

How much is a good pension at 60 in the UK?

What’s considered a “good” pension at 60 depends on your lifestyle, retirement goals, and other sources of income. It’s best to seek professional financial advice to understand what’s right for your situation.

What is the 70% rule for pension?

The 70% rule suggests you may need around 70% of your pre-retirement income to maintain your lifestyle in retirement. This is just a general guide — your personal needs may vary, so speaking to a qualified financial adviser is recommended.

What is the 3% rule for pensions?

The 3% rule is a general guideline that suggests withdrawing 3% of your pension savings each year to make them last throughout retirement. However, this may not suit everyone — it’s wise to get personalised advice before making any decisions.

Where can I get free pension advice in the UK?

Services like MoneyHelper and Pension Wise offer free and impartial guidance on pensions in the UK. For advice tailored to your circumstances, consider speaking to a regulated financial adviser.
 

How does equity release work for pensioners?

Even with careful planning, pensions alone may not always provide enough income to live the retirement you want. Rising living costs and longer life expectancies mean that many retirees are exploring ways to supplement their income.

Equity release allows you to unlock tax-free cash from your home without needing to move. The money could be used to top up retirement finances, make home improvements, or cover unexpected costs - helping you feel more financially secure.

At Key, we’ll guide you through the process and explain whether equity release is right for you. If it isn’t, we’ll tell you. You can book a free callback to speak with one of our specialists, or try our free equity release calculator to see how much you could unlock.
 

Be financially aware
Lifetime mortgages are secured loans. Compound interest means the amount you owe can grow quickly. Equity release reduces your estate's value and may impact means-tested benefits. It may leave little or no property equity, reducing future financial options.

All our equity release advice relates to lifetime mortgages. Our fixed advice fee of £1,699 is only payable on completion of a plan. If another product is more suitable, we'll refer you to a different adviser within Key Group to help. Key Group offers alternatives to equity release such as a retirement interest-only mortgage or retirement repayment mortgage.