What will my pension be worth in the future?
Understanding how much your pension could be worth is the first step towards planning your future retirement.
Last Updated: 1 January 2003
We don’t have a crystal ball. But we do have a pension calculator which can help you get a rough idea of what your pension will be worth given your current pot size and foreseeable contributions.
Although this will give you an idea of what your pension could be worth, there are some other questions you’ll need to ask yourself that will affect your pension’s value over the long term.
Although this article and our tools can provide you with helpful information, it’s not personal advice. If you’re not sure if something is right for you, ask for financial advice. An adviser will be able to help you understand what’s right for your individual circumstances.
What will affect the value of my pension?
Naturally, how much you contribute to your pension over time will have a big impact. With the cost of living so high, it can be difficult to justify paying more into your pension. But where possible, contributing as much as you can afford will help give you the best chance of boosting your pension when the time comes to retire.
When it comes to your workplace pension, how much your employer contributes will also help. If your employer matches your contributions, a small increase from you could make even more difference.
Then there’s market performance. The peaks and troughs of the market will affect the value of your pension over time. This will have an impact on how you invest over time. As a general rule, the closer you get to retirement, the greater the need to reassess your portfolio to adjust for the investment risk you’re willing to take.
Please note: Investments can fall as well as rise in value so you could get back less than you invest.
If you’re thinking of buying an annuity when you retire, annuity rates will have an effect on the value for money you’ll receive. Annuity rates are attractive right now but in recent memory, they haven’t always been. So this is a consideration nearer the time.
In terms of the state pension, the number of qualifying years of National Insurance contributions will affect how much of the maximum state pension you get. You can check your projected state pension using the government’s state pension forecast tool.
How much can I invest in a Self-Invested Personal Pension (SIPP)?
Your pension contributions are limited by both the pension annual allowance, which is £60,000 for most people, and 100% of your relevant UK earnings, each tax year. Any contributions made by you count towards both limits, as does any basic rate tax relief added by the government, while contributions paid by your employer only count towards the annual allowance.
If you’re a UK resident under the age of 75, you can get pension tax relief on what you pay in, even if you don’t work or pay tax.
To get tax relief, your personal contributions can’t be any higher than your earnings, or £3,600 if this is greater. If you want to contribute above the amount you earn, your employer might be able to make an employer pension contribution, although this is still subject to the annual allowance.
If you’ve got unused annual allowance from the previous three tax years, you can use the carry forward rule. That means you could contribute up to £180,000 if you haven’t used all of your allowances in the previous three years.
Keep in mind that pension and tax rules can and do change, and any benefits will depend on your circumstances. You can’t normally access the money in a pension until age 55 (rising to 57 in 2028).
How do I claim higher rate tax relief on pension contributions?
Pension tax relief can serve as a helpful boost to the value of your pension.
For personal pensions (such as the HL SIPP), and certain workplace pensions, basic-rate tax relief is usually claimed back automatically by your pension provider. If you pay higher rates of tax, you'll usually need to complete a self-assessment tax return to claim any further tax relief. Then the money will be paid to you personally and not into your pension. Read our guide to claiming back higher-rate tax relief for more information.
For other pension schemes, tax relief is typically received by reducing the amount of income tax you pay.
Find out how much tax relief you could claim using our calculator.
How much does my employer contribute to my pension?
This is a really important question to ask. If you’re over 22 and earn at least £10,000, you should be entitled to a workplace pension.
The minimum an employer is obliged to pay in is 3% of your qualifying earnings. But some employers go above and beyond by offering benefits such as matched contributions or even double matched if you’re lucky.
Find out from your manager, your HR or payroll departments how much your employer pays in.
Is my pension income taxable?
Pension income is taxable. Usually you can take up to 25% of your pension tax free once you turn 55 (rising to 57 in 2028). You can choose to do this in one lump sum or several smaller sums.
Other than that, your pension income is taxed in the same way as salary or earnings.
Tax bands for the 2023/24 tax year
| Income | Tax band |
|---|---|
| £0-£12,570 | Tax-free personal allowance |
| £12,570-£50,270 | Taxed at 20% |
| £50,270-£125,140 | Taxed at 40%. Personal allowance reduces by £1 for every £2 earned over £100,000 |
| £125,140 upwards | Taxed at 45%. Personal allowance lost entirely. |
If you’re a Scottish taxpayer, tax rates and bands differ, and so different rates of tax relief apply.
