New research from leading online pension provider, PensionBee, reveals a concerning knowledge gap among Brits when it comes to the critical question: “how much money will I need in retirement?”.
In the nationally representative survey of 1,000 working-age UK adults, nearly a quarter (23%) admitted they were unsure of the total pension pot size required to achieve their desired retirement income. The next most common response (15%) was ‘less than £150,000’.
According to the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards, £150,000 could only fund a ‘minimum’ retirement standard for around 10 years, covering all basic needs but allowing little room for extras1.
This suggests many savers may be underestimating the true cost of retirement, risking a pension shortfall, as the average retirement lasts approximately 15 years, assuming retirement begins at 662 and life expectancy reaches 813. Fewer than half (49%) of respondents estimated they would need a total pot of around £250,000 or more, which would be necessary to sustain a basic retirement, longer than the 15 year average.
In general, there was a lack of clear consensus among respondents regarding their desired annual income in retirement. The top three responses clustered around an annual income of £15,000 to £30,000, which includes the State Pension if eligible and other benefits and income from savings or investments.
While the upper limit aligns with the average salary in the UK4, it falls short of the PLSA’s ‘moderate’ standard, in which retirees would see their annual food and clothing budget increase, in addition to a two week holiday in Europe as well as a long weekend in the UK every year5.
Only 15% of respondents indicated a desired income of over £45,000 a year, exceeding the PLSA’s ‘comfortable’ standard, in which retirees would see their annual food and clothing budget increase again, in addition to a two week holiday in the Mediterranean, with a budget to replace their kitchen and bathroom every 10 to 15 years and car every 3 years6.
When asked if they felt on track to achieve their desired retirement savings, almost half (43%) of adults noted that they didn’t feel on track with their retirement savings. More respondents felt unsure about their progress (30%) than confident they were on track (27%).
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “It’s hard to plan for retirement without an idea of how much you might need, yet most Brits seem to be unaware of - or worse, dangerously underestimate - the true cost of retirement.
A good pension pot is one that can provide enough money for the duration of retirement. As this exact amount will vary based on individual circumstances, pension calculators can be a helpful tool in setting financial goals and adjusting behaviours to achieve them.
However, one rule is broadly true: the earlier individuals start paying into a pension, the more likely they are to be able to afford their desired lifestyle, as their pension has longer to grow and the amount they’re required to save each month reduces.
Consolidating old pensions into one easy to manage plan can also simplify the retirement planning process, by providing greater visibility, to make it easier to stay on track for later life.”
Table 1: In your opinion, what total size pension pot would you need to generate your desired retirement income annually?
| Response | Percentage of respondents |
|---|---|
| I don’t know | 23% |
| Less than £150,000 | 15% |
| £150,001 - £250,000 | 14% |
| £250,001 - £350,000 | 11% |
| £350,001 - £450,000 | 9% |
| £450,0001 - £550,000 | 7% |
| £550,001 - £650,000 | 6% |
| £650,0001 - £750,000 | 4% |
| £750,001 - £850,000 | 3% |
| £850,001 - £950,000 | 2% |
| £950,001 - £1,050,000 | 4% |
| More than £1,050,001 | 4% |
Source: PensionBee, May 2024. Responses from a nationally representative sample of 1,000 working age UK adults aged 18-54. Numbers have been rounded.
Table 2: How much annual income do you think you’ll need in retirement? This includes any pension savings, State Pension entitlement, other benefits and income from other savings or investments
| Response | Percentage of respondents |
|---|---|
| I don’t know | 8% |
| I’m not planning to retire | 1% |
| £5,001 - £10,000 | 5% |
| £10,001 - £15,000 | 8% |
| £15,001 - £20,000 | 12% |
| 20,001 - £25,000 | 13% |
| £25,001 - £30,000 | 12% |
| £30,001 - £35,000 | 10% |
| £35,001 - £40,000 | 9% |
| £40,0001 - £45,000 | 6% |
| £45,001 - £50,000 | 4% |
| £50,001 - £55,000 | 3% |
| £55,001 - £60,000 | 1% |
| £60,001 - £65,000 | 1% |
| £65,001 - £70,000 | 1% |
| £70,001 - £75,000 | 1% |
| £75,001 - £80,000 | 1% |
| More than £80,001 | 3% |
Source: PensionBee, May 2024. Responses from a nationally representative sample of 1,000 working age UK adults aged 18-54. Numbers have been rounded.
Table 3: Are you currently on track to achieve your desired pension pot size / retirement income?
| Response | Percentage of respondents |
|---|---|
| I’m not sure | 30% |
| No, probably not | 25% |
| Yes, I probably am | 20% |
| No, definitely not | 17% |
| Yes, I definitely am | 8% |
Source: PensionBee, May 2024. Responses from a nationally representative sample of 1,000 working age UK adults aged 18-54. Numbers have been rounded.
Footnotes
Retirement Living Standards, Pensions and Lifetime Savings Association A ‘minimum’ standard for a single person is defined as £14,400 a year. At this standard, retirees could expect to cover all of their needs, such as food (£75 per week), clothing (£630 per year) and housing. They’d also be able to enjoy a week and a long weekend in the UK every year, £20 on each friend or family member’s birthday present, and some DIY maintenance and redecorating one room a year. However, the budget leaves no room to run a car.
Earnings and employment from pay as you earn real time information, UK: February 2024, ONS According to the data, the median monthly earnings across all sectors in the UK were £2,334, an increase of 6.4% compared to 2023.This is equivalent to earning an annual salary of £28,000 before tax.
Retirement Living Standards, Pensions and Lifetime Savings Association A ‘moderate’ standard for a single person is defined as £31,300 a year. At this standard, retirees would see their food budget increase to £195 per week and their clothing budget increase to £1,500 per year. On top of this, they’d be able to enjoy two weeks in Europe as well as a long weekend in the UK every year. The budget for a moderate lifestyle would also allow for some help with maintenance and decorating each year, £30 on each birthday present plus the money to run a car and replace it every 7 years.
Retirement Living Standards, Pensions and Lifetime Savings Association A ‘comfortable’ standard for a single person is defined as £43,100 a year. At this standard, the budget for food increases to £230 a week and the budget for clothing is to £1,500 each year. At this level, retirees could enjoy a fortnight 4* holiday in the Med with spending money, the budget to replace their kitchen and bathroom every 10/15 years, £50 on each birthday present and they’d be able to replace their car every 3 years.
