How much pension do I need?

The question of how much pension you need for retirement is one that is difficult to answer, a little nerve-wracking, and also somewhat subjective. While this article is designed to help you form your own strategy, one key factor to consider is that ‘enough’ money depends subjectively on what kind of lifestyle you personally find acceptable.

What’s not subjective is that with the cost of living rising and life expectancy increasing, ensuring you have enough saved to retire has never been more important. The reality is that most people in the UK are not saving enough, and the gap between what they have and what they need continues to widen.

According to the most recent government data, the average weekly income for single pensioners is £282, which works out at around £14,664 per year. However, research suggests that a single person needs considerably more than this for even a basic retirement lifestyle, while those seeking a more comfortable retirement will need significantly larger pension pots.

Understanding retirement living standards

To properly answer the question of how much pension you need, it's essential to understand the three retirement living standards defined by the Pensions and Lifetime Savings Association. These benchmarks provide a realistic picture of what different levels of retirement income can provide.

For the minimum standard, a single person needs £12,900 a year and a couple £19,900 to provide enough income to cover basic needs with a little left over for fun. This level allows for a self-catering holiday in the UK, eating out once a month, and some affordable leisure activities. The good news is that two people in receipt of the full State Pension will already have enough to cover the Minimum level costs, as the full State Pension for 2025/26 is £230.25 a week, £11,973 per year.

The moderate standard provides more financial security and flexibility, requiring £23,300 annually for a single person and £34,000 for a couple. This level allows for a European holiday, eating out regularly, and a more comfortable lifestyle overall. At the comfortable level, a single person would need £44,000 and a couple £61,000 after tax to enjoy retirement with few money worries.

The stark reality is that only a small percentage of UK households are on track to achieve even the moderate standard. Most people will need to significantly increase their pension savings to bridge this gap.

What is the average pension pot in the UK?

The latest ONS data shows that 16 to 24-year-olds have average pension savings of £5,500 — the lowest of any age group. This triples to £18,800 for 25 to 34-year-olds as more people enter stable employment and begin regular contributions.

The average then more than doubles to £39,500 for 35 to 44-year-olds, before peaking at around £140,000 for the 55 to 74 age bracket. After 75, average pension wealth drops to £59,700 as retirees begin drawing down their savings.

A significant gender pension gap persists across all age groups. Men consistently hold larger pension pots, with the disparity most pronounced among 45 to 54-year-olds: men average £108,100 compared to just £57,900 for women.

Interestingly, younger generations have built larger pension pots in recent years while older cohorts have seen their savings shrink. This may reflect frozen income tax thresholds and student loan repayment bands making pension contributions more tax-efficient for younger workers, combined with the positive impact of auto-enrolment schemes.

How much should I contribute to my pension?

A 2025 MoneyPlus study suggests a simple pension guideline: save half your age as a percentage of your salary. So, if you're 20 years old, aim to contribute 10%. The company emphasises that even small amounts compound significantly over a 40-year career, so making early contributions is crucial.

Using the UK's median salary of £37,500, MoneyPlus estimates the pension savings needed for a ‘moderate retirement’ (between minimum and comfortable standards) is:

• Gen Z (18-28) — £12,500 to £25,000
• Millennials (29-44) — £105,000 to £140,000
• Gen X (45-60) — £200,000 to £280,000

Those seeking a more comfortable retirement with additional luxuries or travel will need larger pension pots than these benchmarks.

More generally, the amount you should contribute to your pension depends on several factors, including your age, income, existing savings and retirement goals. However, there are some useful rules of thumb that can guide your decision-making.

By law, the average employee pension contribution in the UK is at least 5%, while the UK's average employer pension contribution percentage is 3%. This brings the total minimum contribution to 8% of qualifying earnings. However, financial experts including MoneyPlus increasingly argue that this minimum is insufficient for most people to achieve a comfortable retirement.

Pension contributions are usually calculated as a percentage of your total earnings between £6,240 and £50,270, which is called your 'qualifying earnings'. Understanding this is important because contributions are typically based on this band rather than your total salary.

The earlier you start saving, the more time your money has to grow through compound interest and investment returns. Someone starting to save at 22 will need to set aside a smaller percentage of their income than someone starting at 40, even if they're both aiming for the same retirement income.

Perhaps the single most important factor affecting retirement needs is housing costs. Those who've paid off their mortgage face far lower fixed expenses than those still renting, meaning they can maintain a comfortable lifestyle on a significantly smaller pension pot.

Conversely, retirees facing ongoing rent payments may need substantially larger savings to cover basic living costs, making homeownership one of the most valuable assets for retirement security.

Calculating your pension contributions

Working out how much to pay into your pension requires you to consider your retirement goals alongside your current financial situation. Start by determining what kind of lifestyle you want in retirement, using the moderate retirement living standard as a framework.

Next, calculate how much of that income will come from the State Pension. To get the full amount of State Pension (currently £230.25 a week), you usually need 35 years of qualifying National Insurance contributions. You'll get a proportional amount if you have between 10 and 34 qualifying years.

The difference between your target retirement income and your State Pension is what you'll need to fund from your private pension savings. Remember that a £100,000 pension pot might provide approximately £5,000 per year in income, plus the option to take a 25% tax-free lump sum. This means achieving even a moderate retirement lifestyle will require substantial savings for most people.

Tax relief makes pension contributions more affordable than they might first appear. If you pay tax at a rate of 20%, every £1 you contribute only costs you 80p net. Higher-rate taxpayers receive even more generous tax relief, making pension contributions particularly tax-efficient for those earning above £50,270.

It’s also worth considering demographics; in an ageing population, wholly relying on the State Pension to be present and non means-tested thirty years from now is perhaps not good financial planning.

How to consolidate and combine pensions

If you've changed jobs several times throughout your career, you likely have multiple pension pots scattered across different providers. Consolidating these pensions can make managing your retirement savings much easier and may reduce the fees you're paying.

Pension consolidation, also known as combining or transferring pension pots, is the process of bringing together multiple pension plans into one single account. This can offer several benefits, including simplified administration and a clearer overall picture of your retirement savings.

However, pension consolidation isn't always the right choice. Before considering a transfer, always check if your existing scheme has guaranteed annuity rates, a with-profits bonus, or a protected normal minimum pension age, as you might lose these benefits by moving your pension.

If you do decide to consolidate, the process of transferring pensions is relatively straightforward for defined contribution schemes. Most providers offer online services where you can start transfers, and the process typically takes between two and 12 weeks. You'll need to provide details of your existing pensions, including plan numbers and provider information.

Some schemes might only accept transfers in during the first year of you joining, or not accept transfers in at all, so your pension providers will be able to explain the rules that apply to you. It's also important to note that you shouldn't transfer a pension that your current employer is contributing to, as you may lose access to those employer contributions.

For defined benefit pensions, also known as final salary schemes, transferring is often not a good idea. These schemes provide guaranteed income for life and often include valuable benefits for your spouse or partner. And if the transfer value exceeds £30,000, you'll need to obtain regulated financial advice before proceeding.

What will my pension be?

Estimating your future pension income involves several variables, including how much you contribute, how long you contribute for, investment returns and the age at which you retire. Online pension calculators can provide useful estimates but remember that investment returns can vary significantly.

Research shows that the happiest retirees have an average monthly income of £1,700, which equates to a pension pot of roughly £221,858 at retirement, providing an income of approximately £20,400 a year (which includes a full State Pension). However, achieving this level requires consistent saving throughout your working life.

The State Pension forms the foundation of most people's retirement income. The full rate of new State Pension is £230.25 a week, though your amount could be different depending on your National Insurance record and whether you were contracted out. You can check your State Pension forecast online through the government's website to see exactly what you'll receive.

For your workplace or private pension, the amount you receive will depend on how your pension pot is invested and grows over time. Most defined contribution pensions invest in a mix of stocks, shares, bonds and other assets, with the value fluctuating based on market performance.

Choosing the right pension vehicle

Once you understand how much you need, the next decision is where to invest it. While workplace pensions provide a solid foundation with employer contributions, many people also open a self-invested personal pension (SIPP) to take greater control over their retirement savings and potentially boost their pension pot through more diverse investment options.

A SIPP offers significant advantages for those comfortable making their own investment decisions. The tax relief remains generous, with savers receiving up to 45% relief on contributions up to £60,000 per tax year, and your investments grow tax-free within the pension wrapper. This means a higher-rate taxpayer contributing £10,000 effectively only pays £6,000 from their own pocket, with the government adding the rest through tax relief.

One of the key benefits of a SIPP is investment flexibility. Rather than being restricted to a handful of funds chosen by your pension provider, you can access thousands of stocks, ETFs and investment trusts. This allows you to build a portfolio tailored to your risk tolerance, time horizon and retirement goals.

For those who prefer a hands-off approach, many providers also offer ready-made portfolios that provide instant diversification without requiring you to pick individual investments.

SIPPs also make pension consolidation straightforward. If you have multiple pension pots from previous employers scattered across different providers, bringing them together in a single SIPP account gives you a clear overview of your total retirement savings and can reduce the overall fees you're paying. Modern SIPP platforms offer user-friendly interfaces where you can monitor your performance and adjust your investments with just a few clicks through web platforms or mobile apps.

Cost is an important consideration when choosing any pension product. Look for providers with transparent fee structures. Some providers now offer commission-free trading on certain investments, which can further reduce costs if you trade frequently.

Security should also never be overlooked. Reputable SIPP providers partner with independent pension administration and trustee companies that specialise in pension services. These arrangements ensure your pension is properly administered and that the trustee acts in your best interests. It's worth checking that any provider you consider has substantial experience in the market and holds appropriate regulatory permissions.

Remember that SIPPs are designed for people who want to take an active role in their pension planning. You'll typically only be able to access your money from age 55 (rising to 57 from 2028), so these are genuine long-term savings.

Taking control of your pension future

The most important step you can take is to start planning now, regardless of your age. Even if you're starting later in life or haven't saved as much as you'd hoped, increasing your contributions today will make a real difference to your retirement income.

Review your pension regularly, at least once a year, to ensure you're on track to meet your goals. Life circumstances change, and your pension strategy should adapt accordingly. Major life events like marriage, having children, buying a house or changing careers are all good reasons to reassess your retirement planning.

Consider seeking professional financial advice, particularly if you have complex pension arrangements, are approaching retirement or are considering transferring a defined benefit pension. While there's a cost involved, good advice can help you make informed decisions that significantly improve your financial position in retirement.

Remember that workplace pensions benefit from employer contributions, which is as close to ‘free’ money as is possible. If your employer offers to match contributions above the minimum, taking advantage of this can substantially boost your pension pot without significantly reducing your take-home pay.

While the sums involved might seem daunting, breaking down your retirement goals into manageable steps makes them much more achievable. Start by understanding where you are now, determine where you want to be, and create a realistic plan to bridge the gap.

Your future self will thank you.

Pensions summed up

• Aim for an annual income depending on your desired retirement lifestyle, as the State Pension alone only covers basic needs
• Contribute at least 10% of your salary if you started saving at age 20, or use the ‘half your age’ rule to calculate your ideal contribution rate
• Consolidate multiple pension pots into one account for simpler management and lower fees, but always check for valuable guarantees first
• Consider a SIPP for greater investment control, tax relief up to 45% and access to thousands of stocks and funds with commission-free trading