With so many day-to-day financial costs to consider, it can be easy to forget about your pension pot. But if you want to live comfortably in retirement, you probably need to give it some thought. We’re here to look at what a good pension pot looks like and how to go about saving for one.
What’s a good pension pot?
It’s hard to put an exact figure on what a ‘good’ pension pot is. A lot depends on your plans for your retirement and what sort of ongoing costs you will have. It also depends on whether you are likely to have a joint pension pot as a couple or whether you will be saving for just yourself.
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According to the Department for Work & Pensions, the average pensioner currently has a retirement income of £17,200 a year (not including the State Pension). This would require a pension pot worth £280,000 by the time you reach 65.
For a frugal retirement, the Pensions and Lifetime Savings Association has estimated a single pensioner would need an income of £10,200. As the State Pension provides just over £9,339 a year, a private pension pot would be needed for the shortfall.
In order to give you a basic idea, a £100,000 pension pot would give you an income of between £4,000 and £5,000 a year. You would also receive a lump sum of £25,000 tax-free cash. If you combine this with what you receive from the State Pension, then you are somewhere between a frugal and comfortable retirement level.
How much do I need to put in my pension?
When deciding how much to save into your pension, there are a lot of factors at play. You will have to think about how much you can realistically save each month. Your current living costs may prevent you from saving more into your pension pot.
It is worth taking stock of your retirement income situation. Have a look at what you already have in your pension pot, what your employer’s contributions are and whether or not there are other sources of retirement income you expect to have.
There are some general rules that suggest how much you should be saving into your pension pot. For example, the ‘50-70’ rule suggests you should aim for an annual income of between 50% and 70% of your current earnings.
Alternatively, you could just work on saving 15% of your annual salary into your pension. And if you have any extra left over in a month, then putting it in your pension pot could be a wise move. Due to tax relief on pensions, they are a more attractive long-term savings product than cash savings accounts, for example.
How else can I boost my pension pot?
If you have your eyes set on saving for a good pension pot, then there are other things you can do to help:
- Take a look at your pension costs. We are more than happy to research the best deals around for our credit cards or car insurance. But when it comes to pensions, it is easy to forget that there’s a choice here too. Take a look at what fees you are paying your current provider. If the charges are eating into your investment returns, it could be time for a change.
- Check it’s invested correctly. Have a look at the type of returns you are getting. If you aren’t happy, maybe talk to your provider about how your pension is invested. Try to make sure your pension suits your approach to risk.
- Get some professional advice. If you are concerned that you won’t achieve your pension pot target, maybe get some professional pension advice. A financial adviser will be able to explain what steps you can take to achieve your desired result.