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How much pension will you need
This information applies to England, Wales, Scotland and Northern Ireland
About how much pension will you need
A pension is money you'll use to live on when you retire. Most people get a State Pension from the government which covers your basic needs. But it's a good idea to try to save some extra money in a pension fund, to give you a decent standard of living.
How much you'll need to put away for your pension depends on what you can afford to save, how many years you have to save and what your needs will be when you retire. Your retirement may last from 20 to 30 years, so you may have to live for quite a long time on your pension.
On this page you can find information about:
- how to plan for your retirement
- how to work out how much you'll need to save for your pension
- what to do if you don't think you can afford to save for a pension
- how to review your pension needs
- where to get more information about pensions and retirement.
Planning for your needs
If you start saving for your pension early in your working life it may be difficult to predict what your needs will be when you retire. Aim to put away as much as you can afford but don't worry if it's not as much as you'd like to start with. It can be better to save small amounts that have a long time to grow in value. If your income improves, you'll be able to increase how much you put away for your pension.
If you're starting to save later in your working life you may have a better idea of what your circumstances are likely to be. For example, you may already have a family or own a home. This can make it easier to work out what level of income you'll need for your retirement but you'll have less time to save it up, and the amount of money you'll need to save may be higher. You may need to prioritise your budget differently so that you can afford to pay extra into your pension. For example, you might cut your spending on non-essential items like going out, so that you can afford to save a bit in your pension.
Saving for your pension is a long-term commitment. Work out your budget to make sure you can afford the regular payment into your pension pot.
For more information about working out your budget including an online budgeting tool, see Budgeting.
Planning checklist
Think about the lifestyle you want when you retire and the commitments you're likely to have. Your needs may change as you go through life so review what you're saving regularly to make sure you'll still be able to have the lifestyle you're planning.
Here's some of the things to take into account when planning how much pension you'll need for your retirement:
- the cost of your home. If you own your home, your mortgage is often one of your biggest expenses. If you can pay it off before you retire, your outgoings may drop considerably. You can work out how many years it has to run. If you rent your home, you'll still have to pay rent when you retire
- fuel bills. Gas and electric bills may be higher if you're at home more and as you get older. Make sure you budget a bit extra and find out if there's any help you can get such as a Winter Fuel Payment or energy efficiency measures for your home
- paying your debts. Try to plan for any borrowing to be paid off before you retire
- some expenses may be lower or disappear when you stop working. For example, you may manage on less or cheaper clothing. You might save on travelling expenses or lunches
- the lifestyle you want to enjoy. What kinds of things will you have to pay for? Will you need more or less money for holidays? How much money will you need for hobbies or other activities?
- your partner. If your pension is also supporting a partner or someone else, remember to take their expenses into account as well
- what other income you'll have. For example, from other savings and investments
- don't assume the benefits system will be the same as now, particularly if your retirement is a long way off. If things change during your working life, remember to review your pension plan
- the state pension age is changing. This is the age at which you'll be able to claim State Pension. For more information about state pension age, see Benefits for people over sixty. To find out what age you will be able to claim your State Pension you can use the state pension calculator on the Directgov website at: www.direct.gov.uk.
How much will you need to save for your pension
You can use the Money Advice Service pension calculator to estimate the amount of pension income you could get from a personal, stakeholder or workplace pension when you retire. This will help you decide how much you'll need to save to get the retirement income you want. Go to:www.moneyadviceservice.org.uk.
When you pay into a pension you get tax relief at the rate you currently pay tax. Remember this when you're working out how much to pay in.
For more information about personal, stakeholder and workplace pensions, see Types of pension.
What if you can't afford to save for a pension
If you don't think you can afford to save for a pension, don't worry. Even if you can't afford to save anything now or if you're not working, start as soon as you can. Don't think because you haven't saved before that it's not worth saving later because it almost always is.
You may be able to pay extra amounts (contributions) into a pension fund when you are working, to make up for lost time.
You'll still be able to get basic State Pension and you may be able to get other help from the state, for example help to pay your rent or council tax. If you're a carer or have a low income you may be able to get the State Second Pension (S2P) to top up your income.
For more information about State Pension, including State Second Pension and paying extra pension contributions, see Benefits for people over sixty.
An adviser at a Citizens Advice Bureau can help you check whether you're entitled to any benefits. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.
Reviewing your pension needs
As you go through your working life, things may change. It's important to review your pension situation regularly, particularly when there is a change in your circumstances, for example, when you get married or divorced, if you change jobs or can't work for any reason.
If you are saving for a partner, remember to review their pension situation and needs as well.
Further help and information
On Adviceguide
For more information about types of pensions, see Pensions.
You may also find the following Adviceguide information helpful:
The Money Advice Service
The Money Advice Service is a free, independent service. Their website has lots of useful information about pensions including comparison tables for choosing a personal pension provider and a pension calculator for working out how much pension you'll need. There's also a range of leaflets to help answer your pensions and retirement questions.
Go to: www.moneyadviceservice.org.uk.
Directgov (in England, Wales and Scotland)
Directgov is the government website. It has lots of information about the state retirement pension and other types of pensions, saving for your retirement and the changes to pensions that will be happening from 2010 to 2012. Go to: www.direct.gov.uk.
nidirect (in Northern Ireland)
nidirect is the official government website for Northern Ireland citizens. It has lots of information about the state retirement pension and other types of pensions, saving for your retirement and the changes to pensions that will be happening from 2010 to 2012.
Go to: www.nidirect.gov.uk.
The Pensions Advisory Service (TPAS)
Helpline:0845 601 2923 local rate
Website: www.pensionsadvisoryservice.org.uk.
TPAS is an independent organisation that provides free information, advice and guidance about all types of pensions including state retirement pension, company, personal and stakeholder schemes.
TPAS doesn't provide financial or investment advice or recommend products.
