What is the average pension in the UK? (Why it’s irrelevant to you!)

What is the average pension in the UK?

I know you want to know so that you can figure out whether you are average.

We all like to imagine that we are above-average drivers and lovers and that, hopefully, our pension pot is also above average.

Hmmm, but if everyone is above average, what does the average pension UK mean?

Let’s say you have an average pension pot or even above average – what has this got to do with YOU?

Or, more importantly, what has this got to do with what YOU need to either maintain or increase your current lifestyle in retirement?

You have to put off being young until you can retire. 

Author Unknown

What is the average UK pension pot?

OK so here it comes, according to Life insurance provider Aegon the average pension pot in the UK is around £50,000. Men have an average pension pot of just over £73,000 and women just over £24,000.

So now you know what the average pension size is, Happy?

Again the question begs, what has this got to do with you?

Maybe you’re thinking or feeling happy with yourself because you have an above-average pension pot looking at these figures. But what these figures don’t tell you is what pension pot does the average person really need. Is it more or less than the average?

The key question remains how much money should you have in your pension depends on what you are expecting to spend the money on?

What is your pension pot for, and how long does it need to last?

The company gave me an aptitude test and I found out the work I was best suited for was retirement.

Unknown

How much will you need to retire?

How much money you will need to retire is like the Riddle how long is a piece of string? The answer being, it depends.

It depends on what you want to do with that piece of string. Or more importantly what you want to do with the money that’s in your pension.

Understanding what you want to do with your pension pot will help you know or estimate how much needs to be in that pension pot when you want to start accessing it.

Here’s where you need to figure out what a basic, comfortable or luxurious lifestyle means to you?

Figuring out these amounts may help you understand how motivated you are to move up or down these levels to secure the pension pot and subsequent retirement lifestyle you want.

The worst place to find yourself is in retirement realising that you do not have enough money in your pension to afford the lifestyle you want. Or worse, you have had to reduce your lifestyle to live off the pension pot you have saved up over your working life—realising now that it’s too late that you have not saved enough.

At this point, you might have some uncomfortable options to consider. You could go back to work if that’s possible or consider even further cuts to your lifestyle, i.e. eating out less, cheaper Holidays, cheaper food shopping, moving to a smaller house or lower living area.

All of these are perfectly fine if it is a choice you are freely making; however, if you are forced to do it, it’s probably not going to be that comfortable or desirable.

In retirement, I look for days off from my days off. 

Mason Cooley

How much money do I need per month in retirement?

A recent WHICH article details that to have a “comfortable” lifestyle, you would be looking at spending a little over £2000 a month or about £25,000 a year.

But again, the question is comfortable for whom? For some of you £25,000, a year will be more than adequate to meet all your needs, but for others, a pension pot producing £25,000 a year could be a significant reduction in your current spending or lifestyle?

Hands up, who wants a significant reduction in their lifestyle when they retire? It’s likely nobody does.

You might be doing different things or even be doing fewer things, but it doesn’t mean you want your lifestyle to go down.  

We all need to figure out what you specifically need in your pension pot for a comfortable, dignified and independent lifestyle.

How much do you spend in retirement?

How much YOU might spend in retirement again is a calculation that YOU need to make yourself.

What are you expecting to be doing in your retirement? An even bigger question is when are you hoping to retire? What does retirement mean to you, and what will it look like?

Will you give up all work and every day is a Saturday?

Will you work part-time or volunteer?

Do you have other sources of income you will rely on?

The Which article Indicates that a luxury lifestyle or what they’re calling luxury might cost something like £40,000 a year for a couple. This takes in a few Holidays to Europe a year, a clothes budget of around £1500 and food shopping costs for a year.

Does this sound like enough for you?  

“Retirement is wonderful if you have two essentials: much to live on and much to live for.”

Unknown

How much do you spend a month or year now?

Knowing what you spend a month, or a year now will give you an excellent indicator of what you might be spending when you retire.

Tracking what you are spending now can be pretty easy with the number of apps that are out there including money dashboard* but many bank accounts will do this for you. You can also go old school collecting receipts and putting them into a spreadsheet to understand what is going.

Tracking your finances is the first key to understanding how much you might need in retirement and whether an average pension pot is good enough for you.

If you expect or want to maintain a similar lifestyle when you are no longer working, then you may spend something like the amount of money you do now.

Maybe it may be more expensive if you are expecting to do more activities like holiday’s, courses or big-ticket items like the Lamborghini you always wanted. So you should factor these costs into your calculations.

If you add up everything, you spend now food, travel, rent, mortgage, eating out, eating in, holidays, gifts and utilities that will give you an idea of what your current lifestyle costs you.

You might then be able to take things out related to work that will no longer be needed. Some of these things like season tickets, uniforms or smart clothes may drop away when you retire.

If you have a go at detailing out your dream lifestyle get yourself a spreadsheet and guesstimate what it would cost per year. This now gives you an idea of how much you might spend in retirement.

Working people have a lot of bad habits, but the worst of those is work.

Clarence Darrow

What should I do in retirement?

Imagine that every day is like a Saturday; this might be what full-time retirement is like. You get to get up late. Watch TV all day maybe go down to the pub. Play golf, then go back home into bed early and the same again tomorrow. And the next day and the next day and the next day. Until one day it’s the last day.

This will be their dream lifestyle for some people, but for others, this will be their Groundhog hell day.

Finally, you are not constrained by needing to be somewhere at a particular time. You can do what you want to do.

What do you want to do when you retire? Once you have figured this out, you can begin to guesstimate what this might cost.

Do you plan to travel, study, work part-time or potter around your garden or house doing DIY projects?

What might it cost if it’s one or many of these things? What does it cost to do those things right now?

How can I increase my retirement income?

Think about a carrot. A retirement or work-optional lifestyle where you can do what you want when you like. With whom you like and as often as you like. Sounds pretty good?

Now think about a stick. Think about life with a meagre income; what will that be like? Many complicated, uncomfortable choices and trade-offs between food, heating and the things you want to do.

Which one of the above scenarios are you more interested in?

If it’s the stick, then you probably don’t need to do much other than wait for your state pension, if it still exists when you reach the right age. But once you reach that point, there probably isn’t much you can do to put it right.

If you’re more interested in the carrot lifestyle, here are a few ideas to get what you need in a pension pot.

How to boots your pension savings

• Have a go at guesstimating what your ideal retirement looks like – this will give you a target to work towards – always begin with the end in mind – without this, you are just scrabbling in the dark.
• Ensure you get your full company match from your employer – it’s free money they give you!
• Track your finances and look for where you can reduce, cut out or change your spending habits to save more money. Then place this money in one or more of your short, medium- or long-term savings pots.
• You could boost your pension savings by setting up your own private pension, which will likely be topped up by the government’s tax relief payments (conditions apply).
• It may be an idea to combine pension pots as this can reduce your admin and make it easier to see what’s going on. Here’s where you might need to consider getting additional advice to see whether this is a good idea.
• Ensure you know the costs you pay for your savings and investments. Look into if you can reduce the fees you are paying, which means that you get to keep more of your money.
• Pay more into your pensions? just an idea!

How to boost your average UK pension pot

Methods to Boost Your Pension	Description
Increase Pension Contributions	Consider increasing your regular pension contributions. This can be done by increasing the percentage of your salary or making additional voluntary contributions (AVCs) if available.
Take Advantage of Employer Contributions	Ensure you’re maximizing employer contributions by contributing at least the minimum required to receive the full employer match. This is essentially “free money” towards your pension.
Consider Salary Sacrifice	Explore the option of salary sacrifice, where you contribute a portion of your pre-tax salary directly to your pension, potentially reducing your taxable income and increasing pension contributions.
Utilize Pension Tax Relief	Take advantage of pension tax relief offered by the government. Ensure you’re making the most of available tax allowances and considering higher-rate tax relief if applicable.
Review and Consolidate Pension Plans	Regularly review your pension plans, especially if you have multiple pensions from previous employments. Consider consolidating them into a single plan for easier management and potential cost savings.
Consider Investment Strategies	Assess your investment strategy within your pension to potentially optimize returns. Seek professional advice or explore options like self-invested personal pensions (SIPPs) for greater investment flexibility.
Stay Updated with Pension Changes	Keep abreast of pension legislation and any changes that may affect your pension. This will help you make informed decisions and take advantage of any new opportunities or incentives.
Monitor Retirement Age and State Pension	Keep track of your desired retirement age and ensure you have a clear understanding of your projected State Pension entitlement. This will assist in planning for any additional pension savings needed.
Seek Professional Advice	Consider consulting with a financial planner or coach or pension specialist to receive personalized guidance tailored to your specific circumstances and retirement goals.

“What do you call a person who is happy on a Monday? Retired.”

Unknown

How much should I put into a pension?

If you have figured out what life costs now, one way to estimate the size pension you need would be to use the 4% rule of thumb.

Let’s say you currently spend £25,000 per year. Times that by 25 to get your pension pot amount. In this case, it’s £625,000.

Then if you withdrew 4% from the £625,000 that would be £25,000 per year income. The £625,000 fund would need to be invested in appreciating assets like stocks and bonds to maintain the value of the fund over time.   

Now depending on where you are starting from i.e. your current pension fund, how much time you have left until retirement and your expected lifestyle, will affect how much you need to add every month to a greater or lesser extent.  

You might need to save a lot less if you want to factor in getting the basic state pension, which is approximately £9000 per year per individual. This would then only see you need an income of £16,000 from your pension/s. State pension of £9000 + your pension pot income of £16,000.

£16000 x 25 = £400,000. A lot of assumptions are in here, so play around with the calculators below to see what works for you.

Here you can use a few calculations to figure out what you might get in a pension pot after assumed starting funds, growth rates, time till retirement and monthly savings.

There’s also a useful pension calculator at the Money advice service site where you can plug your numbers in and see what it spits out.

“You can’t retire from being great.”

Unknown

FAQ: Average pension UK

Summary: What is the average pension in the UK?

So, the average pension pot in the UK is around £50,000. But what has this got to do with your retirement needs?

Possibly not a lot.

Do you need to figure out what a good pension pot looks like?

Because it’s that pot that you will use to live your desired lifestyle, not the average lifestyle.

What is your pension for?

What are you expecting to do with it?

What do you spend right now and is this the lifestyle you want to maintain into later life?

If so, you need to figure out what this costs now. Start tracking your lifestyle costs today.

Answering the above questions will help you figure out how much of a pension pot is good enough for you. This will tell you if the average pension in the UK is good enough or irrelevant to you.

Find out more about our financial planning process and see if it would help you create your bright financial future.

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