If you’ve ever wondered whether your pension is big enough to fund your retirement, you’ve already taken an important step towards securing your financial future.
Research shows that many UK adults are facing a significant shortfall in their pension savings. While some people might be tempted to stick their heads in the sand, we think it’s much better to tackle the issue head-on. Just a few simple tweaks here and there could make a big difference to your retirement prospects.
In this article, we give four practical tips to help you close the gap in your pension savings, so you can look forward to a more comfortable and fulfilling retirement.
The UK pension savings gap
In an earlier article, we worked out how much you need to save in addition to the state pension to afford three different living standards in retirement1. We calculated that a single retiree who qualifies for the full state pension would need £488,688 in pension savings to afford a ‘moderate’ retirement, as defined by the Pensions and Lifetime Savings Association. For a couple, where both partners receive the full state pension, it’s £442,230.
Worryingly, our latest analysis suggests very few people will have anywhere near this figure at retirement. Using the most recent Office for National Statistics (ONS) data from 2018 to 20202, we calculated that the average UK pension pot is £166,000. This falls to £115,000 among women.
Even among people in their 50s – who are getting closer to retirement – the average pension pot is £349,000 for men and £217,000 for women. These figures are skewed by some extremely large pots, so a typical UK adult is likely to have a lot less than this. In fact, the median3 size pot for those in their 50s is just £108,000 for men and £61,000 for women.
What you need versus average pension savings
Notes: The chart shows the average pension wealth among men and women in the UK versus what a single retiree needs for a ‘moderate’ lifestyle in retirement in addition to the state pension, as defined by the Pensions and Lifetime Savings Association.
Source: Vanguard analysis of ONS Wealth and Assets Survey; Pensions and Lifetime Savings Association’s retirement living standards, January 2024.
More positively, people who agreed with the statement, “I feel I understand enough about pensions to make decisions about saving for retirement” had, on average, more than double the amount of pension wealth than those who disagreed with the statement. In other words, taking a bit of time to understand your options could make a big difference to how confident you feel about saving for retirement.
With that in mind, we hope the four tips below will improve your understanding of pensions and, in turn, help you close any gap in your savings.
Tip 1: Understand what you already have
The first step to closing the gap in your pension savings is to understand how big the gap is. That means having a clear picture of how much you’ve built up in pensions already and how much you’re on course to retire with.
Start by checking how much money is in each of your pension plans. If you’ve worked for several employers during your career, you might have accumulated multiple pension plans along the way. Make sure you have all your pensions to hand and, if you’ve lost track of them, use the government’s free pension tracing service to find the contact details.
Next, check how much you’re paying into your pension each month. If you’re employed, also check how much your employer is contributing. If you’re unsure where to find this information, speak to your HR department.
Once you have all the information, our pension calculator can estimate the size of your pension pot at retirement and how much income you could draw each year. That way, you’ll know whether you’re on track for the retirement you want.
Tip 2: Increase your pension contributions
One of the simplest ways to close the gap in your pension savings is to increase how much you contribute each month. Even small increases can make a big difference over time, thanks to the power of compounding. This is when you earn returns on the money you invest as well as on the returns themselves.
Even better, when you make a personal pension contribution you receive tax relief from the government. For every £80 you save into a pension, the government adds £20, boosting your contribution to £100. If you’re a higher or additional-rate taxpayer, you can claim back an additional £20 or £25, respectively, via your self-assessment tax return.
The chart below shows how a relatively small increase in pension contributions could boost someone’s pension wealth at retirement. We assume the individual starts with £70,000 in pension savings and that their money is invested in a portfolio which returns 5.5% a year before fees.
If they relied on auto-enrolment through a workplace pension scheme – with contributions totalling 8% of their salary4 – their pot would be worth just under £310,000 after 20 years. But if they also saved £100 a month into a self-invested personal pension (SIPP), which would be boosted to £125 a month after tax relief, their pot would be worth nearly £360,000. That’s an extra £50,000.
If they were able to save £300 a month into a SIPP (£375 a month after tax relief) their pot would be worth just over £460,000, which is more than enough for a couple to enjoy a ‘moderate’ lifestyle in retirement.
Small increases in pension contributions can make a big difference over time
Notes: This hypothetical scenario is for illustrative purposes only and doesn’t represent a particular investment or its expected returns. It assumes annual returns of 5.5% a year and fees of 0.4% a year. Under auto-enrolment, the monthly contribution from the employer and employee is £293.50. The monthly contribution of £100 into a SIPP is boosted to £125 by basic-rate tax relief and the £300 monthly contribution is boosted to £375.
Source: Vanguard calculations.
So, consider reviewing your budget to see if there are areas where you can cut back and redirect that money into your pension. And whenever you receive a pay rise, think about allocating a portion of it to your pension contributions.
Sometimes, increasing your own contributions can trigger higher contributions from your employer as well, which can significantly boost your savings.
Tip 3: Start as early as you can (but it’s never too late!)
The earlier you start saving for retirement, the better, as it gives your money more time to grow. Unfortunately, it’s impossible to go back in time and tell your 22-year-old self to save more in pensions. But the good news is it’s never too late to begin. As the Chinese proverb goes: “The best time to plant a tree was 20 years ago. The second-best time is today.”
In other words, focus on what you can do now, such as increasing your contributions or making lump sum investments if you come into extra money. Every step you take now is a step towards a more secure retirement.
Tip 4: Control your costs
Even if you can’t save more into your pension right now, there may still be ways to boost the size of your pot.
Controlling your costs can have a significant impact on your pension savings. This is because fees eat into your investment returns over time. In the example above, where the individual adds an extra £300 a month to a SIPP, paying an additional 0.4% in fees would have knocked £25,000 off the value of their pension at retirement.
So, check the fees on your current pension plans and, where appropriate, consider transferring to a low-cost provider.
If you have multiple pension pots, bringing them together into a single plan can also cut down on admin and make it easier to see how much you’ve saved. However, it may not always be in your interests to transfer out of a pension, particularly if you have a defined benefit (DB) pension5 or any other guarantees. If in doubt, it’s always worth seeking financial advice.
Overall, these tips can help you take proactive steps towards boosting your pension savings and securing the retirement you want.
1 Based on the Pensions and Lifetime Savings Association’s retirement living standards, January 2024.
2 ONS Wealth and Assets Survey, 2018 to 2020.
3 To get the median, we arranged pension pot values from smallest to largest and then calculated the middle value.
4 The auto-enrolment minimum contribution for the tax year 2024-25 is 8% of your salary between £6,420 and £50,270. The 8% comprises 5% from you (including tax relief) and 3% from your employer.
5 These pay a guaranteed income depending on your final or average salary and are funded by employers. In general, DB pensions are usually not suitable for consolidation.
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