What is a pension pot?
A pension pot is the total amount of money you and your employer contribute to your pension scheme throughout your working life. Designed to provide retirement income for later life, your pension pot also includes any growth it may have made over the years.
In addition to your pension pot, you may also be eligible for the State Pension, which will contribute towards your overall retirement income. Currently you need to be at least 67 years of age - you can check here.
In this guide we explain your options for generating the best income from your pension savings. If you want to see how much retirement income you could get, use our pension pot calculator.
How much do I need in my pension pot?
According to the Retirement Living Standards, the amount required for a minimum standard of living is £14,400 for an individual and £22,400 for a couple. That is almost £3,000 higher than the full state pension payment of £11,502.
What’s more, for a moderate standard of living that offers greater security and flexibility, an individual and couple would require £31,300 and £43,100 respectively, or £43,100 and £59,000 for a comfortable lifestyle that allows you to be more spontaneous with your money.
What is a good pension pot?
A good pension pot will provide sufficient income to support the type of lifestyle you want in retirement. Typically, experts suggest that you should aim for a pot that along with the state benefit gives you between 50% to 70% of your working income.
What is the average pension pot in the UK?
According to official figures, the average UK pension pot ranges from £37,000 to £95,000; the reason for this large range is that younger people usually have smaller pots, but as you get closer to retirement and have paid more in to your pension, the size of your pot is significantly larger.
The Department for Work & Pensions states that the average single pensioner receives approximately £349 a week, just over £18,000 a year. (After taxes and housing costs).
What are my pension pot options?
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 - you can find more information on this option in our 'frequently asked questions' section.
Our expert says: Its worth noting that whilst financial advice comes at a cost, the International Longevity Centre, reported that on average those who paid for advice were £48,000 better off. Many advisers offer the first consultation for free. So, if you’re not sure whether you need advice, you can make an appointment to find out what they can do for you.
How much will my pension give me?
The amount of income your pension pot will generate will depend on your age and appetite for risk. 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 today 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.
Therefore 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 examples show what the income could be for a 67 year old in good health, investing in a lifetime annuity:
What could a £100,000 pension pot give you?
| Level annuity |
After taking £25,000 tax free cash |
100% invested |
| Drawdown income |
£5,238 |
£7,097 |
What could a £250,000 pension pot give you?
| Level annuity |
After taking £62,500 tax free cash |
100% invested |
| Drawdown income |
£13,436 |
£17,787 |
What could a £500,000 pension pot give you?
| Level annuity |
After taking £125,000 tax free cash |
100% invested |
| Drawdown income |
£26,809 |
£35,536
|
Figures provided by Age Partnership and correct as at 28th August 2024.
So you can see if you wanted to have an income of £2,000 per month you would need a pension pot just under £500,000.
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 - try the calculator or ask for a call back today.
Calculate your pension pot income now