Decoding Pension Statement
Have you ever stared at your pension statement and thought:
“Okay, but what does this actually mean?”
Don’t worry.
You’re not alone.
Every week, I speak with people who feel confused, overwhelmed, or even a bit embarrassed about not understanding their pension paperwork.
Let’s break it down step by step.
What is a Pension Statement?
A pension statement is a summary of your retirement savings.
It tells you:
✔️ How much you’ve saved so far
✔️ Where your money is invested
✔️ What your pension might be worth in the future
✔️ Any charges being taken from your plan
Think of it as your retirement progress report.
The Four Questions Everyone Asks About Their Pension Statement
Here are the biggies that come up time and time again:
1️⃣ What income am I likely to get from this pension?
This is usually shown as an estimated annual income at retirement.
But remember, it’s based on lots of assumptions (like investment growth, inflation, charges, and retirement age).
2️⃣ Will it actually be enough to fund my retirement?
That depends on where you retire, your lifestyle, your other income sources (like State Pension or ISAs), and how long you live.
3️⃣ How long will it last before it runs out?
Unless you are lucky to have a final salary pension, your pension income is not guaranteed for life.
Your spending habits and investment returns matter here.
4️⃣ Am I saving enough to avoid living off cat food in retirement?
A bit tongue-in-cheek, but it’s a real fear.
We all want to retire comfortably without relying on luck or our children.
Case Study: Meet Elizabeth
Elizabeth is 62 and planning to retire to Spain this summer.
She’s just received her annual pension statement from her employer’s defined contribution pension scheme and is trying to make sense of what it means — especially with retirement just around the corner.
Here’s what her pension statement shows:
- Fund Value: £650,000
- Investment Type: Lifestyle fund
- Scheme Retirement Age: 65
- Projected Income at 65: £28,500/year (based on 4.5% drawdown and continued growth)
But Elizabeth doesn’t want to wait until 65.
She’s handing in her notice next month and moving to the Costa Blanca in July.
So what does this mean for Elizabeth?
If she takes income from age 62 instead of 65, a few things change:
- Her fund won’t have 3 more years to grow.
- Her pension will need to last 3 more years in retirement.
- Drawing down earlier means a lower annual income.
Assuming she starts drawing an income now and aims for a sustainable 4% annual drawdown, she could take around £26,000 per year (before tax) starting immediately.
That’s without her State Pension, which she’ll start receiving at age 67 – worth £11,974 per year (tax year 2025/2026).
Her combined income (from age 67) could look like:
- Private pension (drawdown): £26,000/year.
- State Pension (from 67): £11,974/year.
- Total (from 67): £37,974/year before tax.
Questions Elizabeth needs to consider:
- Does £26,000 per year for the next 4 years meet her needs until State Pension kicks in?
- Is her money invested appropriately, now that retirement is imminent? (Lifestyle funds often shift to lower-risk assets automatically.)
- What are the tax implications of drawing this income while living in Spain?
- Should she take her 25% lump sum now? If she does, it will be tax-free. If she waits till she is resident in Spain, it will be taxable there.
Next steps for Elizabeth:
Elizabeth decides to speak with a cross-border financial adviser to understand:
- The most tax-efficient way to draw income as a Spanish resident.
- Whether to take a lump sum or keep everything invested.
How to ensure her pension income will last her lifetime, especially with inflation.
How to Read Your Pension Statement
1. Check Your Current Fund Value
This is how much you’ve saved so far.
2. Understand the Investment Mix
Are you in a default fund or something more tailored?
Your risk level matters.
If you are close to retirement and in a “lifestyle” fund, your risk level will automatically be set to low.
This may not be the best idea, given that your retirement could last 2-3 decades.
3. Look at the Fund Charges
High fund charges can eat into your returns.
Even a 1% difference can cost tens of thousands over time.
4. Review the Projected Income
This is an estimate, not a guarantee.
Use it as a starting point, not the final word.
5. Check Your Retirement Age
Many statements assume retirement at 65 or 67.
If you plan to retire earlier or later, the numbers change.
Useful Stats (UK, 2025)
💡 Full State Pension: £11,973/year.
💡 Suggested income for a comfortable retirement (single): £37,300/year (Pensions and Lifetime Savings Association).
💡 Life expectancy at age 65 years in the UK: 18.3 years for males and 20.8 years for females.
💡 Inflation: Over the last 20 years (2005-2025), UK inflation, measured by the Consumer Price Index (CPI), has averaged 2.82%.
Pension Statements Explained
FAQs
It’s based on conservative assumptions.
It also excludes other income sources like the State Pension (unless stated otherwise).
Yes, but your income will likely be lower.
You’ll need to crunch the numbers.
These are types of investment strategies.
Each has its own risk and return profile.
Because your pension is usually invested in the stock market.
It’s normal for the value to fluctuate.
There are fees for managing your pension.
Some can be reduced by switching provider or consolidating plans.
Yes.
This is called pension consolidation and it can simplify your finances.
But seek advice first.
Some pensions (especially older ones) have goodies that you won’t want to give up.
Yes, after your 25% tax-free lump sum, the rest is taxed as income.
Most pensions can be passed to your spouse, partner, or beneficiaries.
Yes, it probably will.
Firstly, it is very likely that your 25% lump sum will not be tax-free if you take it while resident outside the UK.
Secondly, I have come across a number of UK pension providers who limit withdrawal options for those living outside the UK.
Thirdly, if your pension is valued in GBP, you will need to take currency fluctuations into account.
Finally, if you retire in another country, you will need to assume different rates for things like inflation and the cost of living.
Yes – especially if you’re unsure about what your statement means or how to plan for retirement.
Final Thoughts
Your pension statement isn’t just a boring bit of paperwork.
It’s a window into your future lifestyle.
Taking time to understand it now can help you:
- Avoid nasty surprises later
- Make smarter decisions about saving and investing
- Retire on your terms
If you’re still unsure what your pension numbers mean, feel free to reach out.
Sometimes, all it takes is a second pair of eyes to make sense of it all.
