As of 2023, the average UK pension pot is £18,772 per year. That’s a weekly income of £361 and a monthly income of £1,564. But what does this all mean?
In simple terms, the current pension pot in the UK is considerably lower than it should be for a good standard of living in retirement, offering just enough to cover basic expenses.
Of course, your ideal pension pot size will depend on a few factors. These include your financial goals and lifestyle aspirations, as well as other considerations such as any outstanding debt. But in general, you should be aiming for an annual retirement income that is between 50% and 70% of your current working income.
Concerned that you aren’t saving enough for retirement? Don’t have enough information about pensions full stop? This guide is designed for you.
From a closer look at the average pension pot in the UK by age to a glimpse at a good pension pot and tips on how to boost your savings, we’ve got you covered.
Breaking it down: The average UK pension pot in 2023
The average pension pot changes slightly from year to year, being influenced by the wider economy, individual contributions and government policies. Then there are other factors to consider, such as location and gender. And with the average retirement age rising to 65, you may be a long way from taking out your pension.
With this in mind, the average pension could look drastically different by the time you’re ready to retire.
Currently, what is the average pension pot in the UK?
| Age group | Average pension pot in the UK |
| 16-24 | £2,700 |
| 25-34 | £9,300 |
| 35-44 | £30,000 |
| 45-54 | £75,500 |
| 55-64 | £107,300 |
A few highlights:
- The South East has the highest average pension of £27,584
- Northern Ireland has the lowest average pension of £14,972
- There is currently a 38% gap between male and female pension pots
- At the age of 50, men’s pension pots are double that of women’s
How does this compare to the recommended pension pot size?
To put the above table into perspective, the majority of people in the UK have insufficient pension pots. In fact, research has shown that nine out of ten workers are not saving enough to ensure a comfortable retirement.
But how much should you be aiming for?
Ultimately, the ideal pension pot size is subjective. Retirement is not one-size-fits-all and your plans may be drastically different to a friend or family member. This means that you should be aiming for a retirement income that will suit your lifestyle – whether that’s jetting off around the globe or putting your feet up.
Of course, you’ll also need to factor in your regular outgoings. Balancing your income to align with your aspirations while still meeting any ongoing financial obligations is crucial.
The gap between the State Pension and the reality of retirement
Even with the rise introduced in April, taking the basic State Pension from £185.15 per week to £203.85 per week, it is only enough to cover very basic living expenses. For some, this might be more than enough. However, the majority of retirees are striving for a ‘comfortable’ retirement lifestyle, with a little more financial freedom.
The State Pension certainly serves as a crucial safety net, but you will likely need some additional savings. These can be in the form of a personal or workplace pension plan, along with any other savings accounts you might have.
Once you have an understanding of how much State Pension you could be entitled to, you can start to plan for retirement more effectively. For instance, taking steps towards increasing your savings.
What is a good pension pot?
If you’re at the beginning of your career or you simply haven’t thought about retirement, it can be difficult to anticipate how much income you’ll need.
To make things simple, there are three main categories that retirement living standards fall into: minimum, moderate and comfortable.
Keep in mind that the below figures will give you a rough idea, but are by no means set in stone. The average annual income will also look different for couples, which we have highlighted in each category.
Minimum – £12,800 a year
What will you have the budget for?
This is just enough to cover day-to-day expenses, such as the weekly food shop and household bills. You’ll also have a bit leftover to spend on yourself, including a budget of £540 a year on clothing and shoes.
What will you need to sacrifice?
Unfortunately, a holiday abroad is off the cards. You will be able to enjoy a week and maybe a long weekend somewhere in the UK, however, you won’t have the luxury of a car.
And if you have a partner?
The recommended annual income for a couple is £19,900.
Moderate – £23,300 a year
What will you have the budget for?
You will have a slightly larger food budget as well as £791 a year for shopping trips. You’ll also have the freedom to purchase a three-year-old car, which can be replaced every ten years.
What will you need to sacrifice?
Although you can enjoy a holiday in Europe every year, you’ll likely have to review your holiday bucket list. Within this income bracket, the majority of your pension will go on maintaining a moderate standard of living.
And if you have a partner?
The recommended annual income for a couple is £34,000.
Comfortable – £37,300 a year
What will you have the budget for?
There’s £144 to spend on food per week, plus £1,500 to spend on any extra expenses, like a new coat or hiking boots for your three-week holiday in Europe. You will also be able to update your car every 5 years instead of 10, allowing for a little more comfort and convenience.
What will you need to sacrifice?
Although this is the higher end of the income spectrum, it is still only enough to live comfortably and you will have to be mindful of what you are spending your money on. For example, any extravagant travel plans could eat into your budget for bills.
And if you have a partner?
The recommended annual income for a couple is £54,500.
Top tip: It’s a good idea to have an emergency fund in place for any unexpected expenses, such as home repairs.
How is the rising cost of living affecting pension pots?
The minimum living standard has risen by £2,000 over the last year. So, it’s clear that the cost of living crisis is directly impacting the amount needed to sustain a secure and fulfilled retirement. For example, the lifestyle associated with a ‘comfortable’ retirement may be more aligned with a ‘moderate’ standard of living. This is even more prevalent for those nearing or already at retirement.
As living standards continue to increase, those who were once on track for a comfortable retirement may now find themselves having to make more frugal choices. Fluctuations in the investment markets can also reduce the expected returns on retirement investments, heightening the impact.
This means that retirees may need to adjust their expectations and budgets to maintain financial security.
For those who are further from retirement, it’s more important than ever to be proactive and plan ahead for the future. Is it worth opening a savings account alongside your pension plan? Should you be contributing more to your workplace pension? These are all considerations that will help to set you up for retirement.
Expert advice on how to boost your retirement income
It is estimated that more than half of us are worried about not having enough money in retirement. And, with the cost of living crisis and very basic State Pension, it’s no wonder! Nowadays, an increasing number of people are choosing to put aside some extra money ahead of retirement.
Here are a few ways that you can boost your income:
Start saving as soon as possible
The earlier you start saving for retirement, the longer your investments have to grow (thanks to compound interest).
This can help to increase your annual income once you’ve stopped working, allowing you to enjoy your retirement years instead of worrying about whether you have enough to cover the basics.
Make larger contributions
If you can afford it, increasing the amount you pay into a workplace pension each month will make all the difference.
Claim tax relief
Generally speaking, the government offers 20% tax relief to any contributions made to a personal pension. As a result, it’s worth taking the opportunity to save on tax and increase the amount that you’re paying.
Pick up some part-time work
Many retirees choose to take on a part-time job to supplement their income, enabling their savings to last longer.
This may not feel like the ideal situation, especially if you’ve been working for years and are looking forward to finally relaxing. But you may be able to find a balance between retirement life and part-time work that suits you, whether that’s serving coffee in your local cafe or taking a position in a retail shop.
Consider one-off payments
You may find that you are in a position to boost your pension pot from time to time, be it monthly or even yearly. This gives you the flexibility to allocate extra funds to your retirement savings when it’s convenient for you.
Get the most out of your pension
Whether it’s combining your old pension pots from different jobs or exploring different pension options, there are multiple ways that you can ensure your pension is serving you well.
In essence, a pension is there to help you achieve your retirement goals. So, being proactive and taking the steps to understand how to get the most out of your pension is key.
How to check your pension pot
Just like with a bank statement, it’s useful to review your pension pot on a regular basis. Not only will it give you an idea of whether you’re on track to meet your financial goals, but you will also be able to resolve any issues.
Here are a few ways that you can check your pension:
- Request a State Pension statement – You will need to be over 16 years old and more than 30 days away from your State Pension age
- Workplace or personal pension providers should send an annual statement – These will give you an idea of your future pot value and your expected retirement income (assuming you purchase an annuity), so it’s important to read all the information carefully.
- Keep on top of other investments – Whether you rent out a property or you have share-based investments, you should be able to access statements for any other sources of retirement income.
Get on top of your pension with Finance Rate
Now that you have all the facts and figures, you should have a good idea of whether your pension pot is sufficient or not, compared to the UK’s average. If anything, this will help you to determine if you’re on track to meet your retirement goals, and whether you have the means to enjoy a comfortable lifestyle.
Need a little more information on pensions as a whole?
For most of us, concepts like pension pots and compared interest feel a bit alien. So, our finance experts have put together a detailed guide on pensions, including the different types of pensions available and how to build your pension pot. Pop the kettle on and get comfy.
Remember, if you have any queries, the best thing to do is reach out to your employer or pension provider. They’ll be able to offer expert guidance and address any issues related to your individual pension pot.
Sources used in this article: