What is a pension pot?
A pension pot is the total value of your pension at any point in time, although it’s more often used to describe the final value of your pension before withdrawing an income during retirement.
A pension pot is made up of all contributions you and your employer made over time, government top ups, and growth in the value of your investments.
Your pension pot doesn’t include the State Pension.
What is a good pension pot?
A good pension pot is one that can provide you with enough money during your retirement. The amount you need depends on how many years you have left until retirement and the income you want when you’re retired. A tool like PensionBee’s pension calculator can help you work this out.
If you have a defined contribution pension - the most common type of pension nowadays - the value of your pension on retirement depends on how much you’ve paid into your pension, the performance of your investments, and the fees taken by your pension provider.
This means that the amount you save into your pension is really important, as it will determine the level of income you can expect to receive when you retire.
What does a good pension pot look like?
It’s really tricky to say what a ‘good pension pot’ looks like, as there are lots of different factors to take into account.
It will depend on:
- your current age
- what kind of pension you have
- what age you hope to retire
- how much you think you’ll need when you stop working
Figures from the Office for National Statistics (ONS) show that the average pensioner receives £10,250 a year from their pensions and annuities (not including the State Pension).
Saga Investment Services calculates that a healthy 65-year old would need a pension pot value of about £181,000 in order to generate that level of income.
However, you may decide that you need much more than this to live comfortably during your retirement.
If you’re hoping to retire early, read: How much pension do I need to retire at 55?
How much to put into your pension pot
When you’re deciding what level of pension contributions to make, as well as thinking about the pension size you’re trying to accumulate, you need to consider:
- how much you can afford to put into your pension
- how much you’ve saved already
- your level of employer contributions
- what other sources of retirement income you expect to have.
It’s sometimes suggested that you should try to save around 15% of your pre-tax income into your pension every year during your working life.
If you’re struggling to see how you can afford to pay into a pension, read: On a tight budget? This is how to save for a pension
Remember that your pension contributions are boosted by government contributions in the form of tax relief, and your employer may pay into your pension too.
The PensionBee pension calculator
It can be hard to figure out how much you need to save for retirement, so we’ve built a handy online pension calculator that can make things a little clearer.
You can use the calculator to set a target retirement age and income. Just tell us the amount of money you’ve saved so far and your level of contributions, and we’ll show you whether you’re on track to save enough to reach your target pension income, or whether you may need to increase your contributions.
The calculator makes several assumptions, for example that as you get older you’ll increase your level of contributions, and that your investments will grow at a certain rate. Of course, the calculator is just a tool and it can only make estimates: remember that the value of your investments can go up as well as down, and there are lots of factors that could affect the value of your pension pot at retirement.
Join PensionBee now.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 06-04-2024
