4 key reasons not to underestimate your State Pension when planning for retirement

As you approach the milestone of retirement, you may be starting to consider what your income will look like.

It could be overwhelming to go from earning one income from a single source, to pulling smaller amounts from several places simultaneously when you retire. Plus, learning how best to decumulate your pension pots, cash savings, and other investments is a big step that can take time to get your head around.

With all this to consider – and grand retirement plans to get excited about – you may not have thought carefully about a crucial source of income: your State Pension.

The amount you receive in State Pension payments, if any, will depend on your age and your National Insurance record. If you are a man born before 6 April 1951 or a woman born before 6 April 1953, you may only be entitled to the basic State Pension. Anyone else will be working towards receiving the new State Pension, which this article will cover.

Let’s dive into four key reasons not to underestimate your State Pension when you are planning your retirement.

 

1. You could receive nearly £12,000 a year from the government until you pass away

The full new State Pension, as of the 2025/26 tax year, is worth £11,973 a year, or £230.25 a week.

This is a substantial sum that, if you’re eligible to claim it, could act as the foundation of your retirement income and prevent you from depleting your savings too fast.

To claim the full new State Pension, you need to:

• Have 35 “qualifying years” on your NI record, meaning you have paid National Insurance contributions (NICs) for a minimum of 35 years, or claimed an equivalent credit from the government
• Be age 66 or above, which is the State Pension Age as of 2025/26 (rising to 67 by 2028).

If you have fewer than 35 qualifying years on your NI record, your State Pension payments will be tapered down. You’ll need a minimum of 10 years to receive any State Pension at all.

Check your State Pension forecast to discover how much you are on track to receive once you reach State Pension Age.

It’s easy to underestimate just how valuable your State Pension payments could be over the course of your retirement. Remember, you can claim it until you pass away, meaning there will always be a predictable source of income you can rely on.

For argument’s sake, imagine that the full new State Pension remained at £11,973 from now until you pass away. If you begin claiming it at 66 and pass away at 89, you would receive £275,379 in State Pension payments – a hugely valuable sum.

What’s more, the State Pension rises annually (more on this below), meaning these calculations fall short of what you would actually receive in a 23-year time frame.

 

2. The triple lock pushes the value of the State Pension up every year

The State Pension is set to continue rising each year under the triple lock agreement.

In order to keep pace with rising costs, the triple lock boosts the State Pension each April in line with the higher of:

• Inflation, as measured by the Consumer Prices Index
• The previous year’s wage growth
• 2.5%.

So, if you’re claiming your State Pension, you will not receive the same amount each year; your payments will rise and help you continue to cover the cost of your lifestyle.

 

3. Retirement costs are rising substantially

When you retire, you will want to carefully balance how much you spend and how much you keep invested and saved for the future.

Indeed, BlackRock research, published by PensionsAge, reveals that 61% of those yet to retire are worried about outliving their savings and 74% feel they are not on track to meet a reasonable standard of living in retirement.

Although it isn’t always helpful to worry about your wealth, it is understandable that so many future retirees are concerned about rising costs.

Your retirement goals might include:

• Worldwide travel
• Downsizing your home
• Gifting wealth to loved ones
• Leaving a substantial sum in your will.

As the cost of living increases, these ambitions might become harder to fulfil.

For instance, a report from Nationwide says that between 2021 and 2025, the average cost of holidays has gone up 520%.

Plus, house prices are rising, meaning your own home moving plans could be more expensive than you had planned. If you wish to help the next generation onto the property ladder, they might need more financial assistance than you thought.

So, when you are thinking about your retirement income and planning out what you can afford to do, remember to include your State Pension in your calculations.

While it certainly won’t sustain your lifestyle on its own, your State Pension could help you cover essentials, leaving more room for your savings and investments to pay for the things you’re excited about – especially while costs rise.

 

4. Your State Pension won’t be affected by market volatility

The last five years have demonstrated how events outside of our control can influence stock markets around the world.

Just this year, the Trump administration’s tariff policies, for instance, led to a major downturn in US share prices in April. Although these bounced back by mid-May, it can be tough for investors to ride the wave of volatility when it inevitably arrives.

This is especially true when you’re on the cusp of liquidating investments, including those in your pension, to provide your retirement income. If there’s a downswing just before you draw from your pot, you could crystallise those losses, having a knock-on effect on the overall value of your retirement fund.

A financial adviser can help you plan ahead for decumulation and mitigate the risk of downturns affecting your wealth. But it’s also important to remember that your State Pension is not subject to these fluctuations – and knowing this may bring you peace of mind when you come to retire.

 

Contact the Chancellor team and gain a bespoke approach to your retirement plan

Our advisers have heaps of experience helping people from all walks of life, and in all circumstances, retire with confidence.

To learn about forming a bespoke retirement strategy, contact our team today. Email info@chancellorfinancial.co.uk, or call 01204 526 846 to speak to an adviser.

If you’re already a client here at Chancellor, contact your personal financial adviser to discuss any of the content you’ve read in this article.

 

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.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.