Interactive Investor

How much should I have in my pension?

27th April 2022 09:56

Rebecca O'Connor from interactive investor

Are you putting enough money into your pension? Our latest research reveals how much the average person has in their retirement fund at different life stages.

There are many financial topics we might discuss with friends: how much the value of property has risen by, or the cost of a supermarket shop, energy bills or an item of clothing. But along with what we earn, how much is in our pensions is another that might make us squirm a bit too much to discuss openly.

It’s a pity, because without some ability to compare, particularly to people the same age as us, how do we know how we are doing, relatively speaking, at different life stages?

First, if you have a pension at all, congratulations: you are among three-quarters (74%) of the population who do. If you do not, you are behind the curve when it comes to the prospect of retiring well and might need to change that today by opening one. A reminder that even for the self-employed, who do not get employer contributions, pensions are worth investing in, even over and above other investment products such as Stocks and Shares ISAs, because of tax relief, meaning you don’t pay tax on your contributions.

It’s time to dispense with shame around pension pot sizes – at least among those closest to us. To help you along, one of the questions interactive investor asked in its most recent Show Me My Money report was a straightforward: ‘How much do you have in your pension?’

The average pot size among the over 55s – those who can start to access their pension – is £132,464.

Among 35- to 54-year-olds, it is £86,281.

And among people aged 18 to 34, it’s £22,801. The higher up you are in each age bracket, the more you would expect to have over and above these averages. You would naturally expect a 54-year old to have more in their pension than a 35-year old. So if you are 54, you’d be considering that about £130,000 is probably roughly the average for others who share the same birthday.

The average monthly contribution people say they make is £240.50, or £2,886 a year.

Men contribute an average £309 a month compared with £172 for women.

Middle age is the peak contribution period: 35- to 54-year olds contribute £261 a month, compared with £245.40 a month for younger workers. Contributions start to decline in the 55+ age group to an average of £218 a month, or £2,616 a year.

The average amount people say they contribute monthly, including tax relief but excluding employer contributions, is 11.2% of salary.

Women both contribute and have less in their pensions as a result, than men. For women to raise the bar here, if they can, they need to be aiming far higher than the average pot sizes and contributions for women. Almost half of women (46%) have less than £10,000 in their pension, compared with 23% of men. For men, the average pension pot was £113,210 and for women it was £55,764. A pot size of £55,764 could generate an income of about £3,000 a year through drawdown – with no tax-free lump sum taken. On top of the state pension, that would be just under £13,000 a year in retirement for the ‘average’ woman.

No women in our set of respondents of 2,000 people had a pension worth more than £1 million, compared to 2% of men. We called the £1 million-plus pension pot brigade the 1% club – that’s the overall proportion of the population who have achieved the feat of building up a pension pot of this size. It is not a common experience.

There’s how we are doing relatively – then there’s how we are doing relative to our goals. It’s quite possible that on this measure, we are all doing quite badly, regardless of how we are doing compared to each other.

The Pensions and Lifetime Savings Association say a moderate annual income in retirement is £20,800 for a single person and £30,600 for a couple, while a comfortable one is £33,600 and £49,700. If you include the state pension, then someone with a pension pot worth roughly £250,000 is on track for the moderate annual income from age 66, and someone with a pension worth roughly £400,000 is on track for a comfortable one, on a single-person basis.

These pot sizes are clearly far higher than the average amounts stated from our survey responses – which indicates that regardless of how we are all doing relatively, on average, we do not have enough in the kitty for even moderate retirements.

So while you might be keeping up with the Joneses on pensions, and hopefully this research will give some comfort to those diligently plugging away at it that they are, whether you or the Joneses will be able to keep up with your own expectations of living standards in retirement on this rate of contribution is another matter. The good news is that even an extra £50 a month or 1% of salary can make a big difference to your eventual pot size. So too can the investment growth profile of your portfolio, and fees.

You can download and read the latest Show Me My Money report for more insight here: https://www.ii.co.uk/pensions/SMMM.

And while you are thinking about it, maybe start talking about it with friends, too. A bit more openness can only inspire us all to do more for our futures.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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