Many of us look forward to the time when we might be able to ease off a little – or stop work completely – to spend more time on our hobbies and interests and with the people we love.
However, calculating whether your pension savings will provide you with enough to live on when you stop working isn’t always easy, especially as the value of investments goes up and down over time. It’s also usually impossible to predict with any certainty exactly how long you’ll live for, which makes it tricky to know how long you’ll need your retirement savings to last.
For example, according to research from independent consultancy Barnett Waddingham, men typically underestimate their life expectancy by four years, and women by seven years.
The consultancy has worked out that if someone plans to draw £5,000 a year from their private pension (on top of the State Pension) and assumes a 17-year retirement from age 65 to 82, they would aim to have saved around £85,000. But if they live to 86, as many men will, they’d actually need a pension pot of £105,000. For women likely to reach 89, the requirement jumps to £120,000. That’s a shortfall of £20,000 for men and £35,000 for women – assuming modest income expectations.
This gap becomes much greater if individuals are targeting a higher income above State Pension in retirement. If, for example, someone is targeting income of £10,000 a year above the amount they receive from the state pension, the pension shortfalls would increase to £40,000 for men and £70,000 for women.
Here, we look at why it’s so crucial to have a clear understanding of how much your pension might be on track to provide, as well as exploring ways you might be able to boost the amount you end up with.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 2,000 reviews on VouchedFor, the review site for financial advisors.
How’s your retirement confidence?
It’s not just that many of us aren’t clear how much we’re going to need to fund our retirement – plenty of people simply don’t feel confident about managing their savings, or even know whether they might have lost track of one or more of their pensions.
According to research carried out by Hargreaves Lansdown, over a third of people (37%) said they weren’t confident that they had enough set aside. A further quarter (26%) said they were unsure.
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, said: “Many of us contribute to our pensions every month, but don’t really think about what we have and what that might give us in retirement. It’s led to a crisis of confidence, with only about a third of us sure we can afford to retire and a quarter of us simply don’t know.”
Don’t be put off by some of the scary sums you might have seen stating how much you need to set aside, as the amount your retirement will cost you depends entirely on your specific circumstances.
Ms Morrissey said: “There are various rules of thumb out there – the Pension and Lifetime Savings Association (PLSA) recently put the cost of a moderate retirement at £31,700 per year for a single person. These figures can prove to be a useful guide, but the reality is that your retirement is individual to you, and you may have plans that will cost significantly more or less than this. Once you have an idea of what you want, then you can work out what it will cost, and then you can put a plan in place to get you there.”
You can find out more about the PLSA’s retirement living standards in our guides £13,400 annual income needed to retire and How much do you need to retire comfortably in 2025?
Get retirement ready
Use a pension calculator
If you’re in the dark about what retirement might hold for you financially, it’s worth using a pension calculator to give you a better understanding.
These tools are designed to help you think about whether you might want to contribute more to your pension if you can afford to, how much retirement income you’re likely to need and how much you can currently expect based on the current value of your savings, and whether delaying your target retirement age might be an option.
Many of them contain sliders that enable you to adjust the information you have already given. This will dynamically change the information shown, so you can immediately see, for instance, the difference it would make to your income if you were to retire at a different age or increase your pension contributions.
We’ve highlighted some of the most useful pension calculators in our guide Five of the best pension calculators to help you plan for retirement.
Can you increase your contributions?
If a pension calculator has shown you that you’re facing a retirement saving shortfall and you’re lucky enough to find yourself with a bit of spare cash at the end of every month, you might want to consider topping up the amount you pay into your pension.
Worryingly, two in five (43%) UK workers currently don’t know how much they are contributing to their workplace pension, according to Scottish Widows’ latest Retirement Report. An even higher number (54%) don’t know how much their employer contributes.
If you’ve been auto-enrolled into your employer’s workplace pension scheme, the minimum contribution is 8% of ‘qualifying earnings’. Of that 8%, your employer can’t contribute less than 3%, but they can pay as much of the 8% as they want. Your payslip should show any pension contributions that are deducted each month. You can find out more about auto-enrolment in our guide How does pension auto-enrolment work?
Almost half of those making default auto-enrolment contributions are on track for a minimum retirement lifestyle, Scottish Widows claims, but only 17% are expected to achieve a living standard above the minimum. That means if you want to enjoy a comfortable standard of living in retirement, you’ll need to boost your contributions if you’re able to.
Ms Morrissey said: “Many employers contribute at the auto-enrolment minimum but there are some who will increase their contributions if you increase yours. This is known as an employer match, and it can make a big difference, so it’s well worth checking to see if this is available.”
You can find out ways you might be able to increase your pension savings in our article 11 simple ways to top up your pension in 2025.
Have you located all your retirement savings?
If you’ve worked for lots of different employers over the years, you might have one or more pensions that you’ve forgotten about, particularly if you’ve also moved home and perhaps haven’t let your pension providers know.
Finding a lost pension could be a big help financially, so it’s well worth drawing up a list of all your previous employers and trying to dig out any associated pension paperwork. The government’s Pension Tracing Service may be able to help. You’ll need the name of an employer or pension provider to use the service, but provided you have that, the service should be able to help you find the contact details for your workplace or personal pension scheme.
The service won’t, however, tell you whether you have a pension, or what its current value is. As well as using their online service, you can also contact the Pension Tracing Service by phone on 0800 731 0193. Learn more about tracking down lost savings in our article Tracing lost pensions – How to find my old pensions.
Are there State Pension gaps you could plug?
If there are any periods that you’ve been out of work, whether that’s due to redundancy, caring responsibilities or something entirely different, you may have gaps in your National Insurance record which might prevent you from getting the full State Pension.
The good news is that you might be able to buy back any missing years to maximise the amount of State Pension you’re entitled to. Ms Morrissey said: “People often have gaps for periods of time when they have been out of the workforce or living abroad. If you qualified for a benefit during one of these gap periods, then check to see if you are able to backdate a claim. Many benefits, for example Child Benefit, come with automatic national insurance credits so if you can put in a successful claim, you can plug gaps for free.
“Other options are to pay for voluntary National Insurance contributions. These can be a very cost-effective way of plugging gaps. However, before you hand over money double check that you will benefit as there may be some cases where you won’t – for instance if you were contracted out of the state second pension.”
You can learn more in our guide Is it worth paying to top up your State Pension?
Get help on your retirement options
Your pension savings won’t just automatically morph into a regular income for you when you stop work.
It’s up to you to decide how and when you’ll withdraw your money, and whether you’ll use your pension to buy an annuity, or guaranteed income for life, or whether you’ll leave your money invested so you can draw down an income as and when you need it. You’ll also need to work out whether and when you want to take your pension tax-free cash. You can read more about this in our articles Should I take a tax-free lump sum from my pension? and Approaching retirement? Here’s what you can do with your pension.
Pete Glancy, Head of Pensions Policy at Scottish Widows said: “Since the introduction of Pension Freedoms in 2015, more people have taken advantage of the option to withdraw their pension as cash. Whilst this flexibility can be beneficial, rushing into withdrawals risks depleting retirement savings too soon, if not done cautiously.
“For those who have the means, seeking financial advice is invaluable – offering structure, reassurance, and a plan tailored to peoples’ needs. At the same time, the onus is also squarely with providers who must do more to engage savers early, and make pension information more accessible, ensuring future generations are better equipped to make informed decisions.”
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 2,000 reviews on VouchedFor, the review site for financial advisors.
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