Money

What is a good pension pot?

Published

3 days ago

September 16, 2024

As a starting point, some experts suggest the 70pc rule, where you aim for 70pc of your current salary as a retirement income. Another option is to aim to build a pot that is 10 times your annual salary.

However, it may be that neither of these methods are right for you.

Michelle Holgate, of wealth manager RBC Brewin Dolphin said: “Some people will say that you need a multiplier of your current salary as a retirement income, however your current requirements will not necessarily match those you have in mind for your retirement. It is best to regularly evaluate your pension savings to see if they are on track to meet the level of income you need or would like in retirement.

“The retirement pot size will depend on your retirement goals. Many people assume they need an income similar to their current income, however this could be more or less throughout your retirement years for many reasons.”

Once you do get an idea of the kind of the retirement income you want, online calculators like the one offered by Aviva can show how much you might need in your pot to provide it.

According to the latest figures from the Department for Work and Pensions, the average single pensioner has an income of £13,884 a year. For couples, that jumps to £29,172 between them. This is after housing costs.

Around 70pc of pensioner households have an income from a private pension. In total, 98pc receive the state pension.

According to the ONS, the median average UK pension pot is £32,700, yet this varies significantly depending on age and pension type. For 25-34 year olds, it’s £9,300, but for 55-64 year olds it rises to £107,300.

How does my pension compare?

By monitoring your fund, you can see how well it’s performing. However, everyone’s circumstances are different, so it’s not necessarily helpful to compare your pension pot to someone else’s.

The most important calculation is whether it’s on track to provide enough for your own retirement. For many people, it might not be.

Steven Cameron, of Aegon, said: “Unfortunately, the amounts people are holding in their pension, particularly if they have no defined benefit entitlements including from past jobs, is often woefully inadequate to provide a comfortable income level in retirement.

“The state pension provides a sound basis but for most won’t be enough. With many people completely unaware of this, we need to find ways to help people make informed decisions which could mean saving more now or accepting they’ll need to work a few years longer before retiring.”

The chart below shows the size of the average pension pot up to 2020. The figure is falling because of the introduction of compulsory workplace pensions in 2012, which produced millions of small pension pots, dragging down the average.

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