What is the average pension in the UK? (Why it’s irrelevant to you!)
What is the average UK pension pot?
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 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.
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.
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.
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.”
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 are expecting or wanting to maintain a similar lifestyle when you are no longer working, then you may well spend something like the amount of money as 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.
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!
“What do you call a person who is happy on a Monday? Retired.”
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.”
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.
FAQ: Average pension UK
What is the average pension pot in the UK?
The average pension pot in the UK is £50,000. However, this is likely to be much smaller than what is needed for an average lifestyle, according to WHICH?
A comfortable lifestyle according to WHICH? costs £19000 for individuals and £28,000 for couples. This would mean a pension pot of something like £250,000 on top of your full state pension.
But as mentioned, there are so many variables in life expectancy, dying with zero vs leaving money vs other income sources, that makes sitting down with a financial planner crucial.
What size pension pot do I need?
That depends on many factors, including how much money you’ll need to live on each year, how long you expect to live, and whether you plan to leave money to your heirs.
Some recommend saving 10-12 times your annual salary by retirement age.
Others suggest saving 20-25 times your annual salary.
However, if you’re smart about it, you can probably get away with saving less.
One way to reduce the amount you’ll need in retirement is to wait until later in life to retire. Another way is to annuitise your pension pot, which will provide you with a guaranteed income for life.
And finally, there are various ways to generate income in retirement without needing to create a huge pot of money to live off.
How much is a good pension pot?
It depends on how much you need to live comfortably in retirement.
A general rule of thumb is that you’ll need about 70-80% of your pre-retirement income to live comfortably.
So, if your current salary is £50,000/year, you’ll need around £35,000-£40,000/year in retirement.
Assuming a life expectancy of 85 years and a 4% withdrawal rate (considered very conservative), you would need a pension pot of about $1 million to generate that income level.
Again, this will vary depending on your specific situation. For example, if you have other sources of retirement income and a much lower cost of living, you may need much less saved up. It’s all unique to you and your lifestyle needs,
What is a good monthly pension amount UK?
A good monthly pension amount in the UK depends on various factors such as your lifestyle, expected expenses, and retirement goals.
However, according to WHICH £2,340 a month is the amount a couple spends on a average for a comfortable lifestyle: all the basics plus some luxuries like travel and leisure.
Financial life Coaching and Planning
Sign up for our Wealth, Health and Happiness newsletter and get your free gift
Are you tired of living paycheque to paycheque? Never able to save? Sick of being in debt? Have no retirement savings?
Are you confused about money and all the financial options out there? Feel like you will never be able to save enough for a house, career change or retirement?
Would you like to?
- Be Debt-free
- Be confident in your money management skills and choices.
- Never have to worry about money again.
- Be building towards your most important goals – like making work optional one day!
- Build a plan to create wealth in every area of your life?
Let us help you make the most of your money now while building a financially free future.
Our financial coaching will give you the support, guidance, and accountability you need to succeed with money.
Start building your ideal life now because waiting will only make it more expensive and painful to achieve.
Plan, build and enjoy your money.
Taking you from crisis to financial happiness.
Contact us here for a chat about Financial planning for 40 year olds and your options for creating wealth in every area of your life.