What is the average pension pot in the UK?

Planning for retirement plays a key role in achieving financial security. However, many are unaware of how much they should be saving or what the average pension pot in the UK looks like at retirement.

Historically, pensions have existed since 1909, yet many still don’t understand how they work or what affects the average pension pot in the UK.

To begin with, in this guide, we look at some of these and offer guidance to help improve your retirement savings.

 

The cost of retirement in the UK: How the average pension measures up

What are the UK retirement living standards?

Each year, the Pensions and Lifestyle Savings Association (PLSA) provides three levels of retirement living standards each year. As a result, these calculate how much you would need to achieve different living standards.

How much do you need for retirement?

A single person needs £14,400 for a minimum standard, and £31,300 to achieve a moderate one. To live a comfortable lifestyle, they would need £43,100.

For couples, £22,400 is needed for a minimum standard. £43,100 would provide a moderate standard, while £59,000 would provide a comfortable living standard.

What do these living standards include?

For example, a minimum standard includes essential needs such as food, housing costs, and bills. There is some money left over for discretionary spending.

A moderate lifestyle offers financial security, including the ability to dine out and enjoy a few holidays each year. In contrast, comfortable means a more relaxed lifestyle, frequent holidays each year and more freedom when spending.

Does the state pension cover retirement costs?

At £11,500, the full state pension falls short of covering even the most basic lifestyle for a single person. This reinforces the importance of building up your private savings to meet or exceed the average pension pot in the UK.

On the other hand, couples who qualify for the full state pension fare better. Moreover, with life expectancy at 85 for men and 88 for women, and the pension age rising to 68 by 2028, most people will spend about 20 years in retirement.

How much should you save for retirement? Bridging the gap to the average pension

If the average retirement period is 20 years, we can calculate the potential shortfall in retirement. We will consider just an income of the state pension and the retirement living standard figures stated above.

A single person with the minimum living standards will have a shortfall of £58,000 in retirement. A single person faces a shortfall of £396,000 for a moderate lifestyle, and £632,000 for a comfortable one.

In this case, couples with the minimum living standards will not have a shortfall, state pension will suffice.

In comparison, couples with moderate living standards will have a shortfall of £402,000. Couples looking to have comfortable standards will have a shortfall of £720,000. These figures consider today’s terms. Inflation has not been accounted for.

Comparing your own savings to the average pension pot in the UK can help you identify if you're on track.

Consequently, a retirement shortfall can lead to serious issues, including financial stress and difficulty covering basic needs.

Things like housing, healthcare, and daily living costs would likely be affected. The state pension alone would struggle to support a comfortable lifestyle in retirement.

For instance, retirees are having to downsize homes, cut back on essentials and sometimes return to work. Planning is critical to avoid these pitfalls.

Sources of retirement income in the UK

You can rely on the state pension in retirement because it offers a fixed income. With the ‘triple lock’, it will stay in line with inflation. For this reason, it's considered a  reliable soucrce of income in retirement. 

Furthermore, defined contribution schemes let you and your employer build a fund based on investments. This generates a pension pot based on investment returns.

In contrast, defined benefit schemes pay you a guaranteed income for life. Specifically, your salary and the number of years you spend with the company determine the amount you rceeive.

Both the state pension and defined benefit schemes are fixed. They give you a firm idea of what you can expect in retirement.

Defined contribution schemes and many other investments are discretionary. In other words, their outcome depends heavily on how they are managed. When well-managed, these can help individuals reach or exceed the average pension pot in the UK.

What is the average pension pot in the UK by age? See where you stand

According to the Office for National Statistics (ONS), the average pension pot in the UK by age is as follows.

Source: The Office for National Statistics (ONS), 2020-2022

Those aged 16-24 have the smallest pension pots. They average £5,500. This figure is more than tripled once we reach 25-34, as most people work.

Similarly, the next age group, 35-44, then doubles to £39,500. Workers begin to find their feet and their earnings start to increase.

We see a substantial increase between the ages of 45 and 64. This is beacuse, people reach the peak in their earnings and begin to ramp up the amount they are saving. This is also the stage when many begin to approach the average pension pot in the UK.

Between 65 and 74 people start to access their retirement benefits. For those 75 and over, eventually, their savings have fallen as they spend.

Get expert financial advice

Above all, the best advice is to begin early! You give your savings a better chance of compounding and growing.

An increase in your pension input over a significant period can make a big difference.

Many employers will match your pension contributions. Making the most of these benefits will notably increase your savings for retirement.

Therefore, a regular review of your pension savings ensures you remain aligned with your retirement goals. 

Let Regulated Advice match you with a financial advisor for expert advice.