Combining State Pension and private savings for a steady income

As you plan for retirement, it’s worth considering how different sources of income can support one another. Combining the State Pension with other pensions and savings could play an important role in creating a dependable income throughout retirement.

For the current 2026-2027 tax year, the new State Pension is £241.30 a week, or £12,574.60 a year.

One of the main benefits of the State Pension is that, once you are eligible, it provides a guaranteed income for the rest of your life and, unlike cash savings, is inflation-linked and retains its value over time.

While it is an important foundation for your retirement, it may not be enough on its own. It’s also worth noting that eligibility for the State Pension typically begins between ages 66 and 68, depending on when you were born.

Besides the State Pension, some people choose to fund their retirement from private pensions, old workplace pensions, general investment accounts (GIAs), Individual Savings Accounts (ISAs), cash savings and rental income if they let property.

For example, someone receiving the full rate of the new State Pension alongside income from a workplace pension and occasional ISA withdrawals may have greater flexibility than someone relying on a single source of income. It’s worth bearing in mind, however, that the amount you receive from pensions and investments can vary. Their value isn’t guaranteed, can go down as well as up, and may end up being less than you originally paid in.

Each of these income sources can play a different role in supporting your retirement.

• The State Pension offers a reliable, inflation-linked foundation.
• Private pensions can supplement your income to help fund day-to-day expenses and larger, discretionary purchases, especially before you become eligible for the State Pension.
• ISAs and cash savings can give you more flexibility for bigger purchases or any unexpected expenses, such as healthcare costs.  

Before deciding how to use your retirement savings, it is important to understand exactly how much you have available. 

It could be more than you think.

Recent research from Pensions UK indicates that there could be over three million lost or forgotten pension pots in the UK, with the average pot worth almost £10,000. 

If you think you may have lost track of an old pension, the government's Pension Tracing Service can help you find the contact details for previous workplace and personal pension schemes.

Tracing old pension pots can help you build a more complete picture of your retirement finances and ensure you are making decisions based on all the assets available to you.

According to the Pensions UK Retirement Living Standards, a single person needs around £13,900 a year for a minimum standard of living in retirement, which rises to £32,700 for a moderate lifestyle and £45,400 for a comfortable retirement. These figures are intended as a guide only and individual circumstances will vary depending on spending habits, location and personal goals.

However, for many people, the full new State Pension is unlikely to provide the level of income needed to support their desired lifestyle in retirement.

Private pensions can also offer valuable tax advantages while you are saving for retirement. However, the way pensions are taxed depends on your individual circumstances and may change in the future.

For every £80 a basic-rate taxpayer contributes to a pension, the government typically adds £20 in tax relief, bringing the total contribution to £100. Higher-rate taxpayers can also claim additional tax relief, which means a total contribution of £100 may only cost them £60.

In fact, recent research by Pensions Age indicates that higher-rate taxpayers are losing out on over £1 billion in pension tax relief each year. Unlike basic-rate tax relief, which is typically added automatically to pension contributions, higher-rate taxpayers may need to claim the additional relief through their Self-Assessment tax return. If you are unsure whether you're receiving all the tax relief that you are entitled to, it's worth speaking to a financial adviser.

You can book a free, no obligation call with one of our team today. There are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.

Private pensions could offer greater flexibility than the State Pension, both in terms of when you access your money and how you choose to take an income. Most people planning to retire within the next 10 years won’t be eligible to receive the State Pension until they are in their late 60s. However, until 2028, the age at which you can withdraw money from a private pension (drawdown) is 55; after 2028, it will be 57.

How and when you choose to withdraw your money may be just as important as the amount you have saved. Drawing income from different sources, at different stages of your retirement, could also be more tax-efficient and help you maintain greater financial flexibility.

In 2024, the government announced that pension funds and death benefits will be included in a deceased person’s estate for inheritance tax purposes.

• This may affect people who are intending to pass unused pension savings to future generations as part of their wider estate planning strategy.
• These changes could also have an impact on how and when people choose to use their retirement savings, as pensions have usually been excluded from the estate for inheritance tax purposes. 

Although the new rules don't take effect until April 2027, it's never too early to review your options and make sure you're still on track to meet your retirement and estate planning goals.

Building up your retirement savings is an important step, but understanding how those savings will support your retirement is equally important. Your State Pension, pensions, investments and cash savings can each play a different role. When used together, they can help create a more flexible and resilient retirement income plan.

Personal circumstances, spending needs and tax rules can also change over time, which is why it's essential to review your retirement plan regularly and adjust accordingly.

This article is for information purposes only. It is not intended as financial advice.

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