What is the average UK pension pot worth?
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Pension Pots are the total amount of pension contributions you and your employer have made up to save for retirement. This can vary, but are you aware of what the average pot is worth?
In 2013, it became mandatory for businesses to auto-enrol all employees over 22 and earning above £10,000 into a defined contribution pension. Before this, there were just one million employers in such schemes; now there are more than ten million.
Defined Contribution Pension
If you have been auto-enrolled, you will pay 4% of your wages into your pension while your employer must put in at least 3%. The government effectively adds another 1% in tax relief. A defined contribution pension is the most common pension most people have, and according to life insurance provider Aegon the average pension pot in the UK currently stands at nearly £50,000.
Men save an average of £73,600 while women save on average £24,900. Many circumstances contribute to women’s pension’s being significantly smaller than men’s, including raising families and lower-paying jobs. You can read more about the Gender Pension Gap in our previous blog.
However, many people overestimate how much they will need to live on in retirement, often thinking they will spend the equivalent of their wages now. The common perception is that you will need between half and two-thirds of the final salary you had when you were working, after-tax, to maintain your lifestyle during retirement.
Increasing your retirement pot isn’t as simple as it sounds.
Experts have praised auto-enrolment for getting the nation saving for retirement but warn it could be misleading workers into thinking they are doing enough. This misconception, and the hope to leave substantial savings to your family when you pass, leads to some people seeking to increase their pensions through investments.
For many, investments can be worthwhile and increase their retirement savings dramatically, these are usually when regulated advice is followed and investments in secure businesses are made. However, for some, they can lose a significant amount if they have been the target of mis-sold advice from unregulated advisers.
For those who are inexperienced with investing, a more secure way of upping your pension pot is increasing contribution.
Speaking to This is Money, Steven Cameron, pension director at Aegon suggests that a more secure way of increasing your retirement fund is by increasing your contribution, especially for those who are not experienced or comfortable with the risk involved in investing.
Figures from the pension’s provider show that a 30-year-old earning £27,000 and due to retire at 68, would have a pension pot of £255,333 if they stuck to auto-enrolment contributions. Yet if the worker upped that by 2.5% and the employer matched this rise, they would retire on a pot worth £414,916 — nearly £160,000 more.
Alternatively, if the same worker was aiming for a pension pot of £250,000, they would hit their goal eight years earlier by increasing their contributions.
Looking for advice?
When it comes to planning for the future, jargon and paperwork can seem incredibly overwhelming. There are some great services out there that can help.
You can look to speak to a regulated IFA, your workplace or visit https://www.pensionwise.gov.uk/en.
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