When making plans for retirement, your first thoughts should turn to how much money you will have to live off, or rather how much you need to live within your life-style goals — you’ll need more for a luxurious lifestyle than you would an average small-town lifestyle.
But retirement planning is far from straightforward, and it can be hard to imagine how much money you will need to live off once you no longer have a monthly wage packet and your family home is paid off.But plan you must. Especially if you want to retire early, to ensure that you’re in optimum health so you can go out and enjoy your retirement in comfort and style.
As a starting point to this endeavour, you may wish to learn the size of the average pension pot in the UK. And to that end, this article is going to present data taken from the Office of National Statistics (ONS), which is accurate as of 2022. More specifically, we’re going to be looking at the median accumulated pension pots by age group.
You can use this data to get a feel for where you are in the whole scheme of things. It may boost your confidence in your money handling, or it may drive you to work harder to reach more idyllic pension saving goals.
We’ll kick things off by starting with what you can expect from the state pension, followed by work and private pension pots.
Table of Contents
State Pension Benefits & Expectations
If you have been making regular National Insurance contributions since leaving school, whether through paid work or through some kind of benefit, or more often, a combination of the both, then when you hit retirement age (which will be at 67 for both men and women come 2028), you can expect to receive a state pension of £179.60 per week.
This works out at a total of £9,339 a year. This is quite pitiful if we’re being honest — It’s about half the annual salary of someone working full time on minimum wage, and it’s barely a third of the average full time average salary in the UK. You can’t really live on this in the UK unless you already own a home, or you have other savings/investments to pull from during retirement.
You can however live on such funds quite comfortably outside of the UK while still collecting a state pension — we created an article on places where it would be affordable for someone on strictly a state pension budget.
Employer & Employee Pensions & Benefits
Luckily for most UK residents they do not only have state pension benefits, but also have an employer pension pot thanks toprocedures were put in place around 2012 that made it mandatory for employers to set up a pension scheme for their employees.This meant that it became compulsory for employers to make contributions to the work pensions of their employees.
Currently UK employers are required to contribute at least 3% of the employee’s wages into their workplace pension. But this gets boosted further still by the employee’s contribution. The total minimum contribution, made up of both the employee’s and the employers’ contribution comes to 8% of the employee’s wage.
According to the statistics (now removed) from Gov.uk in 2018/2019 the average income of all pensioners was £320 per week. This is just over double what pensioners receive from state pension alone. This total pension works out at £16,640 per year, which still works out at less than the annual salary of someone working full time on minimum wage — however this is enough to live in the UK or in many places around the world comfortably…just not in the big capital cities.
With that being said if you want to live a plush retirement, or in a big city like London, then if you have any wits you’d aim to acquire a greater pension pot than that made possible by automatic pension schemes alone. Sure £16,640 is enough money to live off once your family home is paid off, but as the cost of living increases, you would be well advised to look into building a private pension, so you have a nice nest egg to play around with when you hit retirement age.
Private Pensions & Averages
So, let’s now turn our attention to private pension pots. We’re going to look at median private pension pots in the UK by age — keep in mind these are basically the optional non-mandatory contributions to tax-advantaged accounts and does not include traditional non-retirement investments.
Those aged between 16 and 24 have a median private pension pot of just £2,700 —which is understandable since most people this age are still finding their feet in their career and don’t have much extra funds to invest, yet alone long-term for retirement.
Between the ages of 25 and 34, this more than triples in size to a median of £9,500 — again understandable as retirement is still not a big priority for most young people, and saving extra funds is often hard to manage.
This goes up significantly between the ages of 35 and 44 to reach a new median of £30,600 — as people get settled in their career and lifestyle, often purchasing their first residence, they lock in their biggest expense’s cost (housing) allowing them to save much more than they ever were able to before.
Those between the ages of 45 and 54 have a median private pension pot of £81,200 — At this point you can see the compounding effect taking charge, as while contributions often continue at the same rate or greater than during the previous period the returns from previous investments make up a big portion of the returns.
Those between the ages of 55 and 64 have a median private pension pot of £189,700 — This is where peoples private pensions usually skyrocket as you can see — this is largely because some people have paid off their homes and no longer have that expense, allowing higher contributions on average amongst the UK populace.
Those between the ages of 65 and 74 have a median private pension pot of £190,700 — You might wonder why it’s so close to that of the previous category, well that’s because some people begin tapping into their pensions around this age, drawing them down in value rather than contributing to them more.
At ages 75 and onward, the median pension pot drops significantly to £90,300 — this is largely due to people drawing down on their pensions rather than contributing, as well as slightly lower saving averages earlier in life due to the struggles of post-war life in the UK.
So those are the medians per age, which is often more telling than averages, but if you wish to know the average pension pot in the UK come retirement age, this comes in at £61,897 — The conventional wisdom regarding making your pension pot last is to withdraw between 3 and 4% of your pension portfolio each year of your retirement.
However, 4% of the average pension pot at retirement age, £61,897, comes in at a mere £2,476 per year, whichis not enough to live off, so if you intend to go down this route, using a private pension, you must also access both your state pension and your work pension as well — or have non-pension (non-retirement) investments.
Wrapping Up & Conclusion
When it comes to preparing for retirement, there’s no time like the present. The earlier you start to make moves, the greater wealth you can achieve in a small space of time. Neglecting your finances may cause you to spend when you really should be saving.
Sure in the UK you will have both a state pension and a work pension, but as we have discussed, £16,640 per year, which is far lower than most UK citizens are accustomed to living on — and even contributing an average amount to a private pension will only up this to£19,116 whichwhile liveable is still not what most people how to be able to retire on.
If you want to retire better off we’d recommend checking out our guide on how to retire earlier and wealthier than you otherwise would.
Important Pension Pot FAQ's Answered:
Below we’ll cover the FAQ’s we’ve been asked, or encountered, or even have asked ourself related to pension pots in the UK.If you have other questions feel free to reach us through our contact page and we’ll get back to you as soon as we can — and maybe even add our answer down below.
How much of a pension pot do you need for a comfortable retirement?
If you are looking to retire in the UK we’d say you need around£1,250 per month for a decent retirement in the countryside or smaller town, up to around£3,000 if you want to live in centralLondon — these are lower-bound figures and if you want extra funds to go on vacations or be able to help out your family then you should opt for at least a few hundred more pounds per month to save for such events.
This means your pension pot, to have a comfortable retirement in the UK, will need to be around£375,000 to£900,000 to reliably maintain such a monthly stipend on an ongoing basis. Of course the more the better and you should aim for slightly higher than this come retirement age as come retirement you may want more luxuries than you currently have or rising inflation could effect your retirement plans.
If you’ve been following along closely you may notice the total pension pot of all the average peoples pensions in the UK, including state, employer, and private pensions, result in a barely liveable retirement — if you do not have a higher than average savings rate, and investments, or have a house you own, you’ll likely need to live in the countryside during your retirement to be able to afford everything you need and not have to worry about your bills too much.
How much of a pension pot do you need to get £1,000 per month?
To receive£1,000 per month throughout your retirement and not risk running out you’ll need to have around£300,000 saved between your private, government, and employer-sponsored pensions. This may sound impossible, but as we covered above it’s not only possible but easily obtainable by most people who live in the UK without even having their retirement as a big priority.
How much of a pension pot do you need to get £2,000 per month?
To receive£2,000 per month throughout your retirement and not risk running out you’ll need to have around£600,000 saved between your private, government, and employer-sponsored pensions. This is above what most people manage to save up for retirement, so if you want to achieve such a retirement income you’ll have to make it a priority and save more than others, start early in your life, and notfalterfrom your plan. It’s quite a feat to save this much, even over a lifetime.
How much of a pension pot do you need to get £3,000 per month?
To receive£3,000 per month throughout your retirement and not risk running out you’ll need to have around£900,000+ saved between your private, government, and employer-sponsored pensions. To achieve this you’ll have to be VERY aggressive with your saving and investing and start early in life — or start a business or get a fantastic job that gives you lots of disposable income you can invest.