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.

THERE can be lots of reasons why you might not get the maximum State Pension.

If you’ve taken time out of work to raise kids or care for elderly parents, if your earnings have been very low or you’ve worked for yourself, or if you’ve spent time living and working abroad - all can be reasons why you may not get the full State Pension possible.

If that’s the case, it could cost you dearly in retirement. That’s because the State Pension is extremely valuable income - and very expensive to replace.

How expensive? According to the latest market prices, replacing the current maximum State Pension (available to those retiring after 5 April 2016) would cost slightly more than £205,430. That’s based on buying a financial product - an annuity - to replace the income provided by the State Pension.

The reason it costs so much to replace is that the State Pension is both guaranteed and protected against inflation - two things that are precious and difficult to replicate any other way.

An annuity lets you exchange money saved inside your pension for a guaranteed income. The rates on annuities fluctuate but right now the rate paid to a healthy 65-year-old is around 5.16%. That’s with income payments escalating by 3% a year to combat rises in prices - not the full protection against inflation that the State Pension enjoys thanks to the ‘triple lock’ (the promise to raise the payment by the greater of inflation, wage rises or 2.5%) but still very valuable.

On the basis of that rate, it would require £205,430 of pension savings to replace the current full State Pension of £203.85 a week.

Annuities are not the only way to get an income from retirement savings. Income drawdown allows you to leave your money in your pension pot and take income or lump sums from it as and when you want. A rule of thumb is that you can withdraw around 4% a year from a drawdown pot and still have a good chance that your savings last for 30 years.

Based on that, you would need £265,005 of pension savings in drawdown to recreate State Pension income - more than an annuity and without the guarantee that income will last until you die, but with the benefit that the money remains yours.

Why the State Pension is so valuable

Current full State Pension (weekly) £203.85
Cost of recreating at current annuity rates (5.16%) £205,430
Cost of recreating via drawdown (4% withdrawal) £265,005

Source:, as at 21.06.23

Given the high cost of getting it any other way, it makes sense to maximise the income you get from the State Pension. Your entitlement to the State Pension is based on your National Insurance (NI) contributions. To get the full State Pension you need to have made NI contributions for 35 complete years by the time you retire.

Those working as employees are likely to have NI taken automatically from their pay, while self-employed people with earnings above a certain level will pay their contributions via self-assessment.

The government has an online service that lets you check on your NI record for any gaps and to see whether you’ll get the full amount. You’ll need a government Gateway account, which you can sign-up for using details from your passport, payslips or P60. If you have gaps in your record, you may be able to pay voluntary NI contributions to fill them, or else full them with NI credits that apply in some circumstances.   

The government has just extended the window to fill in missing years of NI from 2006 to 2017. To decide whether it make sense to fill in your record, call one of the government’s dedicated helplines - the Future Pension Centre on 0800 731 0175 if you are not yet at pension age or the Pension Service on 0800 731 0469 if you already at state pension age.

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 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.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. 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 one of Fidelity’s advisers or an authorised financial adviser of your choice.

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