Pension pots explained

  • What is a pension pot?
  • How much do you need in your pension pot?
  • How can you use your pension pot?
  • Calculate your pension pot
In this guide: All the information you need to understand your pension pot and the income you could get from it.

What is a pension pot?

Your pension pot is the total sum of money you've accumulated for your retirement over your working years. It's made up of the pension contributions you and/or your employer have paid into one or several pension plans, plus any growth that's built up in your pension’s investments over time. However, your pension pot does not include your State Pension, which will also contribute towards your overall retirement income

Most of us have had several jobs in our lifetime, and you may have a variety of pensions with various employers. If you're not sure what plans you have, you can use the Government’s Pension Tracing Service to find them.

Your pension providers should have sent you a statement each year with details of your pension pot's current value. You may also be able to check the latest figure online. Enter the combined total of all your plans into our calculator, and it will generate a forecast of how much you can expect to get from your pension each month.

How much do I need in my pension pot?

How much you need in your pension pot will depend on:

  • Your age now
  • What kind of pension plan/s you have
  • When you're planning to retire and start taking pension payments
  • The amount of income you want to live on each month or year in retirement

The income you get when you retire is based on the total amount you've saved in your pension pot, so it needs to be big enough to support you with a reasonable standard of living in later life.

The Financial Conduct Authority says that currently most people in the UK have a pension pot of just under £62,000. Even when combined with the State Pension, this amount may only provide a low to moderate income in retirement. 

If you're concerned about the size of your pension pot, it can be worth getting expert advice from a pension income specialist like Age Partnership, to make sure your pension pot is on track for the retirement you want.

How can I use my pension pot?

When deciding how to use your pot, you are free to choose any of the following pension income options. Whichever you select, it’s important to understand the rules and tax implications involved:

Take a tax-free lump sum - Withdraw up to 25% of your pension pot as a tax-free lump sum

Defer your pension - Leave your pension pot untouched for now and continue to work

Buy an annuity with some or all your pension pot to give yourself a guaranteed income

Use pension drawdown to invest some or all your pension pot to give yourself a more ‘flexible’ income

If you have several pension pots, you may to consolidate them

Combine these options if you have enough in your pension pot to do so

Cash in your whole pension pot

What is a ‘good’ pension pot?

A good pension pot is big enough to give you an income you are happy to live on in retirement, but how much is the ‘right’ pension amount? 

Some experts suggest you should save 10 times your average working-life salary. So if your average salary over the years works out at £45,000 you should be aiming for a pension pot of about £450,000.

Some suggest putting aside 12.5% (one eighth) of your monthly salary. So if your salary is £45,000 and you save around £470 a month – over 40 years assuming growth of 5%, could accumulate into a decent pension pot of over £410,000*.

Don't worry if you have considerably less than 40 years left before you retire. It’s never too late to start planning for your retirement. Simply put aside as much as you can afford to each month while you're still working.

What constitutes a ‘good’ pension pot for you may also depend on the age you wish to retire. In the following examples, we set out how someone retiring in their 50s is likely to have different requirements to someone who retires later in life.

What is a good pension pot at 55?

There’s no typical 'good' pension pot to have saved by the age of 55. Everyone is different, so it will depend on your personal circumstances and how much you want to live on each month.

The average UK pension pot for people aged 55 is about £80,000, but this might not be the right amount for you. Your retirement income needs are unique, and what’s good for you might be too little or too much for someone else.

Try the pension income calculator

What is a good pension pot at 60?

Some experts believe your pension pot should be 20 – 25 times the amount you expect to spend each year when you retire. On that basis, if you want to spend £20,000 each year, you’ll need a total pension pot of between £400,000 and £500,000 when you retire.

Remember you will also get a State Pension, and you might have other income – from a rental property or a part-time job, for example - which will also contribute to your overall income.

So, if you expect to spend £20,000 a year and you get an annual State Pension of £8,000, you’ll need an annual income of £12,000 from your pension pot.

Try the pension income calculator

What is a good pension pot at 65?

The Department for Work & Pensions states that the average pensioner receives approximately £17,200 each year after taxes and housing costs (excluding their State Pension).

So, a healthy 65-year-old would need a pension pot of around £280,000. This would allow you to take your 25% tax-free lump sum and then receive a yearly income of £17,200 for 15 years of retirement.

However, if you want a comfortable and active retirement, with enough money to do everything you want, you might need a larger pension pot.

Try the pension income calculator

Maximising your pension pot options

The best way to maximise the income from your pension pot will depend on your age and appetite for risk, as there are several options to choose from. You also need to consider your life expectancy, to gauge how long you think you’ll need your pension to pay out for.

The average life expectancy for a 65 year old in the UK is 85 years old for a male and 87 for a female. Which means half the UK population who reach 65 can expect to live longer than these averages.

So choosing the best pension option based on life expectancy, when you don’t know how long you’re going to live can be a complex decision. Which is where speaking to a specialist pension income adviser like Age Partnership could help.

The following tables give you an idea of some of the options available a healthy 65 year old, based on a pension pots of £100,000, £250,000 and £500,000 and a life expectancy of both 80 and 90 years of age.

The first three lines show what you could achieve with a lifetime annuity versus a fixed annuity over 15 and 25 years.

The last three lines focus on the drawdown option, highlighting the funds you have remaining at 80 and 90 and when your money could run out.

What could a £100,000 pension pot give you?

Age on death Age 80 Age 90
Level annuity income to this age £5,812 £5,812
Fixed annuity term 15 years £8,044  
Fixed annuity term 25 years   £4,974
Drawdown income £5,812 £5,812
Estimated drawdown funds remaining £46,250 £0
Age at which drawdown funds run out Not applicable 89/90

What could a £250,000 pension pot give you?

Age on death Age 80 Age 90
Level annuity income to this age £14,056 £14,056
Fixed annuity term 15 years £20,214  
Fixed annuity term 25 years   £12,467
Drawdown income £14,056 £14,056
Estimated drawdown funds remaining £125,329 £0
Age at which drawdown funds run out Not applicable 89/90

What could a £500,000 pension pot give you?

Age on death Age 80 Age 90
Level annuity income to this age £28,617 £28,617
Fixed annuity term 15 years £40,466  
Fixed annuity term 25 years   £25,026
Drawdown income £28,617 £28,617
Estimated drawdown funds remaining £241,087 £0
Age at which drawdown funds run out Not applicable 89/90

how much will a £100,000 pension pot be worth?The benefit of talking to a company like Age Apartnership is that they can discuss the different scenarios with you and agree the best course of action based on your personal circumstances.

Please note the following:

3% net of charges for drawdown has been used. This assumes a level 3% annual growth, however, should the fund grow at less than 3% especially in the early years this could impact the overall amount invested and therefore your income.

The best annuity rate for a healthy individual as at 23/5/22 is 5.8% and this has been used.  Annuity rates may be higher for people with health and medical conditions.

When can I withdraw money from my pension pot?

You can usually start making withdrawals from your pension pot at the age of 55.

It's possible that you could start taking your pension earlier if you need to retire due to ill health or disability, but you would need to check the terms set by your pension provider.

If you’re getting close to retirement age, watch out for pension scams. Fraudsters could offer you spurious advice about withdrawing and investing your pension. In particular, be wary of anyone suggesting that you could start withdrawing your pension before your 55th birthday.

Could you get more pension income for your retirement? 

Taking professional financial advice or expert guidance could get you more pension income for your retirement.  Research by the International Longevity Centre reported that those taking financial advice were significantly better off than those who did it themselves.

We have teamed up with Age Partnership, one of the UK's leading pension specialists, who can ensure your pension pot works hard for you.

Their retirement specialists can compare leading pension providers including Aviva, Standard Life, LV, Prudential, Canada Life and Hodge Lifetime, to find the best pension income deal for you.

They are so confident of achieving this that they will give you £100 if you find a better like for like quote elsewhere.

Calculate your pension pot income now


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