Retiring with a million pounds in your pension might sound like a distant dream, but with the right strategies it might be more achievable than you think.

Combining regular, disciplined investing with time in the market and tax relief could produce a sizeable sum of money by the time you retire. For example, our analysis shows that a 25-year-old who contributes less than £100 a month into a low-cost self-invested personal pension (SIPP) and gradually increases their contributions over time could hit the million-pound mark after 40 years.

In part one of our series, we’ll explain the key role that pensions can play in your million-pound quest. In part two, we’ll explore how much income a million pounds might generate in retirement.

The power of a SIPP

Unlike an individual savings account (ISA), where you can withdraw your money at any time, you can’t access money in a SIPP until at least age 55 (rising to 57 from April 2028). This reduces the temptation to dip into your savings prematurely and gives your money the opportunity to grow over a longer period of time. That means you can harness the full power of compounding, which is when you earn returns on the money you invest as well as on the returns themselves.

Additionally, the government tops up your personal pension contributions with tax relief, which means you get an extra £20 added to your pension for every £80 you invest. If you’re a higher- or additional-rate taxpayer, you can claim back an extra £20 or £25, respectively, via your annual tax return.

How much do you need to save?

What does reaching the magic million with a SIPP look like in practice?

To keep it simple, let’s consider a 25-year-old basic-rate taxpayer who wants to reach £1 million by age 65 and does not have a workplace pension scheme. Based on current tax rules and an average annual investment return of 5% after costs, they would need to save £552 a month, or £6,623 a year, into a SIPP.

Most 25-year-olds might find it challenging to set aside such a large portion of their income. That’s why it’s important to consider increasing your contributions gradually over time. For example, our 25-year-old could also hit the one-million-pound mark after 40 years by contributing just £87 a month (or £1,047 a year) into a SIPP to begin with and then increasing this amount by 10% a year¹.

What if you're older or want to retire earlier?

If you're older than 25 or planning to retire before 65, the path to a million pounds might look different. But the good news is that the example above didn’t account for any of the additional pension savings that you might get through a workplace pension scheme.

In the table below, we’ve assumed the investor has a workplace pension as well as a SIPP and that they benefit from combined (employer and employee) statutory minimum contributions of 8% of their salary into their workplace scheme². In most cases, they have already built up some retirement savings too. 

In each case, we show how much more the individual would need to contribute each month to their SIPP to get to a million pounds overall.

The data assumes that any additional contributions are made into a SIPP rather than a workplace scheme. We’ve also assumed that the individual’s salary is their only source of income and that it increases by 3% a year. The same income tax bands as exist now are used to calculate the potential tax relief. Again, the investment return after costs is assumed to be 5%.

How much more would you need to contribute to reach £1 million?

Source: Vanguard. Notes: A 5% investment return after costs is assumed along with the minimum auto-enrolment of 8% of your salary between £6,240 and £50,270. *Required gross contributions would exceed annual earnings, which would go against current tax rules.

By glancing across the numbers, you might spot a scenario similar to your own circumstances. If so, you can assess whether building anything like a million-pound pension is feasible or something you could aim for.

Choosing the right SIPP

It's very unlikely that statutory workplace pension contributions alone will help you build a £1 million pension. This is where a SIPP, such as the Vanguard Personal Pension, can help. 

We offer a range of services to help you invest your pension savings. You can build your own portfolio from our wide range of low-cost individual funds. Or you can keep things simple with one of our Target Retirement Funds. These are ready-made retirement portfolios that mature with you, so you don't have to worry about adjusting your investments as you get closer to retirement. If you want more of a helping hand, our managed service will select investments for you based on your attitude to risk.

Just remember to check first if your employer has a policy of paying more into your workplace pension if you increase your personal contributions too. Employer matching should always be taken advantage of before contributing to a SIPP because it can give you an additional leg up. 

So, now you know what it might take to become a pension millionaire. All that's left is to consider what sort of retirement income such a sum of money would provide and for how long. That is the topic of part two in this series.

¹ By the final year in our example, the person would be paying £53,827 a year (including basic-rate tax relief) into their pension – or close to the current (2025-26) annual pension allowance of £60,000. Excluding all tax relief, that would equate under current rules to total net contributions of about £43,000 or £32,000 a year, depending on whether they were higher-rate or additional-rate taxpayers at the time, plus tax relief.

² The minimum contribution for the tax year 2025-26 is 8% of your salary comprising 5% from you (including tax relief) and 3% from your employer on anything you earn over £6,240 up to a limit of £50,270.
 

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