Pension planning can be confusing. You know you need to build up a pension pot to provide an income when you retire. but how much income will you actually need, and how big does that pension pot need to be to provide it?
It’s harder to answer than you might think, because the cost of retirement depends on your lifestyle. If you are looking for the simple life with some light gardening as the pinnacle of enjoyment, you will need less than the couple who not only want to see the world, but want to see it in style.
According to trade association Pensions UK, a basic retirement costs a single person £13,400 per year, while a couple can manage on £21,600 Basic means what it says. Forget running a car or evenings out.
A moderate retirement costs £31,700 for a single person, and £43,900 for a couple, and might let you run a car, and holiday abroad once a year.
A comfortable retirement costs £43,900 per year for a single person, and £60,600 for a couple. Enjoy foreign holidays, UK mini-breaks and a new car every five years.
What does it take to provide those levels of income?
If you live with a partner and own your own home, the state pension could be enough to cover the cost of a basic retirement. You would both need to qualify for the full new state pension, currently just under £12,000 per year and for joint income of just under £24,000.
How can you build the pension pot you want?
Many people have an unpleasant surprise when retirement times come round, and they discover their pot is too small to provide the income and the lifestyle they planned.
With that in mind, what are the chances of building up the level of pension pot savings, especially if you are ready for the finer things in life with a comfortable retirement? Actually, they could be better than you think.
Start a private pension when you are young
You can’t rely on your workplace pension to provide the kind of pension pot you want, although you should make full use of it. Employer contributions — especially when matched — are a valuable benefit that can significantly boost your savings.
The trouble is that you will probably change employer several times in the course of your career, resulting in multiple small pension pots that are easily lost track of.
None of them will be likely to build the kind of pot you need.
For that, you may need a private pension, and to start as young as possible.
There are several reasons why.
- First, the tax relief on pension contributions. This means that very £8 you pay into your pension become £10 as it reaches your account as a basic rate taxpayer. Higher rate taxpayers can boost their pot by £10 by contributing just £6. It means your pension can be the most rewarding investment you’ll ever make.
- The second reason? A pension is a long term investment. Starting early gives your money more years to compound, where the interest or other returns each year is reinvested for the next, leaving you with a pension pot that may be worth many times what you put into it.
- And perhaps most important of all, a private pension puts you in charge. You can arrange your level of contributions and how they will be invested to aim at building the pension pot you want.
Get some expert help to build your pension pot
Call us at Continuum and we can look at your pension prospects with you.
We can create projections to show you the pension prospects you have now, and if they include a pension pot large enough for your intended lifestyle – and if they don’t we will show you how you can build the scale of pot you need.
Call us today for the help – and the pension pot – you need.
Data: ONS (Pension wealth: wealth in Great Britain) – Data released 24th January 2025 for reporting period 2020 to 2022.
Home – Pensions UK – Retirement Living Standards
This document is intended for general guidance only and is based on the opinion of Continuum it does not constitute financial advice. Individual circumstances vary, and you should consider seeking advice from a regulated financial adviser before making any decisions about your pension or retirement planning.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
Pension savings are at risk of being eroded by inflation.
The tax treatment of pensions in general will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.
The Financial Conduct Authority does not regulate taxation advice and cash flow modelling.
