Average UK Pension Pot - How Does Yours Compare?

A pension pot is a nest egg for a fruitful life beyond work. Depending on when you retire and how long you live, retirement can last for 30 years or more. Creating enough money for a long and comfortable retirement can seem like a slow and difficult journey. But roughly how far along are you? And how does your progress so far compare to the average UK pension pot?

The average UK pension pot

• Data published in April 2017 revealed that the average UK pension pot was £50,000.
• This represents a 4% increase since the new pension freedoms were introduced in April 2015.
• Based on these figures alone, the average UK pension income in 2017 would be £2,500 a year for someone above the age of 65.
• Factoring in the full new state pension of £159.55 per week (multiplied by 52) would provide a total annual income of just £10,796.

Other sources suggest over 55s to have “an average saving’s balance of £47,237.”

Newfound freedom (in both saving and spending)

Since the new pension freedoms were introduced, individuals are no longer tied to annuity. This newfound freedom has caused average pension pot savings to rise dramatically year on year. Between 2015 and 2016, there was an increase of 23.8%. Between 2016 and 2017, there was an increase of 40.4%.

While the freedom has encouraged more people to take control of their savings, spending habits have experienced a surge, too.

In August 2016, “3,379 people took out more than 10% from their pensions.”

Yvonne Braun, Director of Policy, Long Term Savings and Protection at the Association of British Insurers explained, “The data also suggests a minority are withdrawing too much too soon from their pension pot - 4% of pots are having a tenth or more withdrawn - and many other customers are taking their entire pot in one go.”

While this may seem reckless, the data could be drawing upon individuals who are “investing the money elsewhere, or who may have multiple, small pension funds.”

Variations across the board

While the average UK pension pot was recorded to be £50,000 in 2016, the figure represents the national average, and does not account of differences across the board. Research shows that the average UK pension pot varies between men and women, and across the country.

• Men have saved 3 times as much money as women. On average, women have saved £24,869, whereas men have saved £73,568.
• Between counties, the difference in the size of the average pension pot can be as large as 133%, according to Portal Financial.

Source

How much do I need to save for retirement?

Research by the Office for National Statistics found that the average retired household “now spends £21,770 a year.” In light of this, the BBC calculated the amount you need to save in order to achieve an annual retirement income of £20,000.

Where does the average UK pension pot stem from?

According to the Office for National Statistics, private pensions, including workplace pensions, contributed around £12,431 a year to the income of retired households in 2016.

By some margin, personal plans provided the greatest chunk of income. When combined with investments and other income, private plans accounted for just over half (50.71%) of gross retirement income in 2016.

Despite the average UK salary being £26,364, the average Briton actually aspires to achieve a retirement income of £32,270.

And while saving regularly can help you work towards a decent pension pot, investing can help you delegate some of the heavy lifting.

Recent research by Fidelity International supports this: If you had placed £5,000 a year in an average UK savings account between mid-2007 and now, your £50,000 in cash savings would have only grown by 1.2% to £50,619.

If, however, you invested the same annual amount in the FTSE All Share, your original investment of £50,000 would have grown by 61.7% to £81,015.

Despite the average UK salary being £28,000 the average Briton actually aspires to achieve a retirement income of £32,270.

Top regrets of 60-year-olds include not saving more into a pension

In November 2016, Nationwide profiled the average UK 60-year-old - from finances to favourite films. In regards to savings, the research highlighted;

• Their average disposable income each month was £338
• Top regrets included not saving enough generally as well as not saving more into a pension
• 39% said that saving money was a key concern

Interestingly, 30% of 60-year-olds surveyed were still employed, with 2 in 5 individuals working 36+ hours per week.

Learn from the regrets of current retirees, and start thinking about your retirement plan today, no matter how young or old you are.

If you didn’t start early, you can still start now

We believe that time is crucial to retirement planning; the sooner you start, the smaller your monthly contributions need to be and the longer you wait, the bigger your contributions have to be.

In an essay titled, “How to Plan for a Successful Retirement,” Joshua Fields Milburn debunks 7 retirement myths, the top two of which relate to age.

• I’m too old to save for retirement

“While it’s true that you’re better off starting at age 25 than 50, it is also true you’ll be better off starting at age 50 than, say, 70… We must stop peering at the rearview and instead look ahead toward the horizon. As long as you’re still breathing, it’s never too late to start.”

• I’m too young to save for retirement

“If you’re younger than 30, you have it made! Young people, no matter your tax bracket, have a significant opportunity to become truly wealthy thanks to the power of compound interest.”

The time you invest in your retirement plan might be more important than how much you invest. In fact, starting at 25 can lower the amount you need to save by approximately 50% than if you were to until 35. Here’s how:

Past performance is not a reliable indicator of future performance.

• If you placed £25,000 in an 8% p.a. investment by the time you were 25 and never added a penny, you would have £543,113.04 by the time you were 65
• Starting just ten years later would split that figure in half, leaving you with £251,566.42
• In order to match the initial figure of £543,113.04, you would have needed to invest around £55,000 by age 25 - a lump sum twice as size as the first example

While having £25,000 by the age of 25 in the first place is difficult in the best of circumstances, the concept rings just as true for smaller amounts.

As the new state pension may only form some of your retirement income, climbing the pension pot ladder can seem like an insurmountable chore. But sticking your head in the sand can make things worse. The amount you need to save can snowball the longer you wait, but the sooner you start, the easier and more manageable your journey will be.

Save yourself the strain by investing in time.

By Jenna Kamal