Planning for retirement is crucial to secure your financial future and understanding the options available to you makes all the difference.
When considering how to fund your retirement, two common options are the state pension and a personal pension. At Howard Wright Financial Planning, our team of chartered financial planners can guide you through these choices, ensuring you are well informed and well prepared for the years ahead.
In this blog, we will break down the differences between the state pension and a personal pension, explain why the state pension alone is unlikely to cover all your retirement needs, and highlight how our team at Howard Wright can help you plan effectively for both your short term and long term goals.
What Is the State Pension?
The state pension is a regular payment from the UK government, designed to provide a basic income during your retirement. The amount of state pension you receive depends on your National Insurance (NI) contributions throughout your working life. In the current system, there are two types of state pensions:
- The Basic State Pension: This applies to those who reached state pension age before 6 April 2016. The maximum payment is £156.20 per week (2024/25 figures).
- The New State Pension: This applies to those who reached state pension age on or after 6 April 2016. The full payment is £203.85 per week (2024/25 figures).
To qualify for the full new state pension, you need at least 35 qualifying years of NI contributions. If you have fewer years, the amount you receive will be proportionately lower.
While the state pension is an essential foundation for most people’s retirement, it is not designed to provide a complete retirement income. For most people, it will only cover a fraction of their needs.
It is also important to remember that the state pension is only paid whilst you are alive, when you pass away your state pension ceases. It’s crucial to not be solely dependent on the State Pension as the primary source of income to your household, as if you pass away your spouse will only have their state pension entitlement not yours moving forwards.
What Is a Personal Pension?
A personal pension is a type of private retirement savings plan that allows you to build up a pot of money over your working life. These pensions are typically arranged through:
- Defined Contribution Plans: Where contributions are invested and the eventual pot size depends on the amount paid in and how well the investments have performed.
- Self-Invested Personal Pensions (SIPPs): Offer greater flexibility and control over how your money is invested.
You can contribute to a personal pension alongside any workplace pensions you may have and the government adds tax relief to your contributions, effectively boosting your savings.
When you decide to retire, you can choose how to use your pension pot, whether through:
- Taking a tax-free lump sum (up to 25%)
- Buying an annuity for a guaranteed income
- Opting for flexible drawdown to access funds as and when needed
Personal pensions provide a tailored and often more substantial income compared to the state pension, making them a curcial part of retirement planning.
Key Differences Between the State Pension and Personal Pension
Here are some of the key differences to consider:
| Aspect | State Pension | Personal Pension |
| Provider | UK Government | Private Providers |
| Eligibility | Based on NI contributions | Open to anyone |
| Amount | Fixed and determined by the government | Dependent on contributions and investments |
| Flexibility | Limited | High (with options for drawdown, annuities, etc.) |
| Tax Relief | None | Contributions receive tax relief |
| Purpose | Basic safety net | Comprehensive retirement planning |
Why the State Pension Alone Is Not Enough
The state pension was never designed to fund all your income needs in retirement. At just £10,600 per annum for those receiving the new full state pension, it is unlikely to cover essential living costs, let alone provide for a comfortable lifestyle. Rising costs of living, increasing life expectancy and potential changes to state pension rules further underline its limitations.
To enjoy retirement you need to supplement your state pension with other income sources, such as a personal pension, workplace pensions, or other savings and investments.
Why the State Pension Alone Is Not Enough
Our team of chartered financial planners have been helping our clients achieve their financial goals since the 1930s. Based in Codsall in the Midlands, we work with hundreds of clients across the UK, providing tailored advice that accounts for both short term needs and long term aspirations.
Here’s how our team of chartered advisers can help you:
- Understanding Your Current Position
At Howard Wright, we start by assessing your current financial situation, including your eligibility for the state pension and the status of any personal pensions or savings you may have. This comprehensive review forms the foundation of your retirement plan. - Creating a Personalised Plan
Each of our clients individual retirement needs are unique. Whether you’re looking to save more efficiently, maximise existing pensions, or explore investment options. At Howard Wright we will build you a bespoke financial plan tailored to your objectives. - Balancing Short Term and Long-Term Goals
Retirement planning is about more than just the future. We ensure that your financial plan balances your immediate financial priorities with your long term objectives, helping you enjoy life now while preparing for the years ahead. - Ongoing Support and Guidance
Life changes and so will your financial circumstances. At Howard Wright as a client of ours. you will receive an annual review to ensure your retirement plan remains aligned with your goals, adapting to any changes along the way. You will also receive weekly and monthly updates as to how your investments have performed via our Eshot service, designed to constantly keep you informed as to how your investments are performing giving you peace of mind and confidence.
Contact Our Award Winning Team Of Chartered Financial Advisers Today
Planning your retirement doesn’t have to be daunting. At Howard Wright, we’re here to make the process simple, clear, and stress free. Call us today on 0345 688 4939 or complete the 20-second enquiry form below to take the first step towards securing your financial future. We look forward to hearing from you and helping secure your retirement.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute financial advice. Individual circumstances vary, and you should consult with a qualified financial planner before making any decisions. Tax rules and pension regulations are subject to change, and their effects depend on your personal circumstances. Howard Wright Financial Planning is authorised and regulated by the Financial Conduct Authority (FCA).
With Howard Wright Financial Planning by your side, you can confidently navigate the complexities of retirement planning and achieve the peace of mind you deserve.