Important information and assumptions

How the pension calculator works

The pension calculator looks to see if there’s a difference between the retirement income that you want and the forecast income from the pensions and savings you’ve built up so far. If there is a shortfall, it estimates how much you need to save to fill the gap.

You decide the retirement income you want, but the pension calculator guides you on assessing how much this might be.

You can find out how much pension you’re likely to receive from your current retirement savings by checking the benefit statements that you should receive each year.

If you have some non-pension savings earmarked for retirement, the pension calculator takes the amount of those savings, assumes they are left to grow between now and your chosen pension age and then converts them to income using the annuity rate for someone of your chosen pension age. (Note that from December 2012 different annuity rates for men and women became illegal and unisex rates apply.)

Of course, you might not buy an annuity but this method gives a reasonable guide to the sustainable income you could draw from those savings in retirement.

If your current savings mean you’re on track for a lower retirement income than you want, the pension calculator works out the monthly savings you might need to make between now and your chosen pension age to produce a large-enough pension fund by then to meet the pension gap. It also lets you explore the effect of retiring later or earlier.

Assumptions that the Age UK pension calculator is based on

The purpose of the Age UK pension calculator is to give you information (based on today’s prices and values) that may help you make decisions about your retirement savings. It doesn’t give advice. If you’re not sure what to do, we suggest that you seek advice from a opens link in new window financial adviser.

The future is full of uncertainty. It’s impossible to be sure how your investments will grow or how prices may rise. But to make plans for the future, it’s necessary to take some view on these and other matters.

Therefore, the Age UK pension calculator estimates how much you might need to save to reach a retirement target by your chosen pension age. It does this by making the following assumptions.

  • The tax system as at 2013–2014 will still apply when you retire.
  • Price inflation between now and your pension age will average 2% a year.
  • Where you convert your pension or other savings into an annuity at retirement, you will buy an RPI-linked annuity (one where the income you get rises each year in line with price inflation). We’ve also assumed that annuity rates when you retire will be the same as today.
  • Where you make extra savings for retirement, these will increase in line with earnings which are assumed to grow at 1% more than inflation.
  • Your invested pension savings will rise by 5% a year before charges.
  • Your invested non-pension savings will rise by 4% a year before charges.
  • Charges of 1.5% a year will be deducted from your non-pension investments. With your pension investments, charges will be deducted at 1.5% a year for the first ten years and 1% a year thereafter.
  • You use all your pension savings to provide retirement income. This means even if you take a tax-free lump sum at retirement, you use it to provide income.
  • You have provided accurate information about your finances.

As with all assumptions, the future may turn out to be different. This is one reason why it’s very important to review your pension savings each year. (Another reason is to take into account any changes in your circumstances – like moving job, or if you are get divorced or are bereaved.)

The pension calculator can’t see into the future. But by making sensible assumptions about how the future might turn out, it can help you plan ahead.

The pension calculator converts the pension fund to income by using the annuity rate for someone of your chosen pension age and, if you have said you want an income for a partner, assumes that half the amount of pension continues if you die first.

Useful contacts

For more information and advice, you can call Age UK Advice on 0800 169 6565

opens link in new window  Find an independent financial adviser

opens link in new window  Pension Tracing Service

opens link in new window  The Pension Service

opens link in new window  Equity release guide (PDF 631KB)

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