Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

WHEN it comes to pension income every penny counts, which makes the news that as many as 134,000 people may have been underpaid their State Pension particularly cruel.

According to the National Audit Office, errors at the Department for Work and Pensions mean that an average £8,900 was not paid to those affected over a period that stretches back to 1985. Women have been particularly badly affected because reassessments of payments that should have been made on the death of a husband were not carried out.

The problem relates to the old state pension system where married women could claim an extra payment worth 60% of the basic state pension based on their husband's record of contributions. A review is now taking place to trace those affected but only some are being fully paid. Others will only be able to claim for 12 months of missed payments.

The State Pension makes up an important part of retirement income for almost everyone, even the relatively wealthy.

What makes the State Pension so valuable is not simply the money it provides - a maximum £179.60 per week currently - but the fact that it is guaranteed and uprated by at least the rate of inflation every year. The State Pension is often what retirees rely on to know that their essential bills will be covered even if other sources of income are uncertain and prices rise.

Guaranteed, inflation-proof income is expensive to replicate in other ways. Some will be able to rely on defined benefit pensions - including ‘final-salary’ schemes - but such arrangements are becoming rarer and less generous.

For those with savings held inside pensions, the only option is to purchase an annuity which is inflation-linked and, based on current annuity rates, it would take a savings pot of £320,000 just to replicate the maximum annual income from the state pension of £9,339. That’s based on a healthy 65-year-old purchasing an annuity that lasts for life and is uprated with RPI inflation.

Ensuring you are entitled to the maximum State Pension possibility, therefore, is vital. To get the full State Pension you’ll need 35 years of National Contributions. If you have less than this your pension is worked out pro-rata - so someone hitting their State Pension age now would divide £179.60 by 35, then times that by the number of years they’ve contributed.

You can check how many years you’ve amassed online through the government service, here.

Understanding how different sources of income can be best combined is an important part of planning your retirement. The State Pension, income from defined benefit pensions, other assets such as buy-to-let property, annuities and income from investments accessed via drawdown may all contribute to your overall income.

If you need help planning your retirement income, professional financial advice may be able to help. If you’re starting to think about your retirement, the Government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 138 3944.

Fidelity’s Retirement Service also has a team of specialists who can provide you with free guidance to help you with your decisions. They can also provide advice and help you select products though this will have a charge. You can call the team on 0800 368 6882.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from your pension savings will not be possible until you reach age 55 (the government is proposing to increase this to 57 from 6 April 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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