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Pensions can be confusing, but we can provide clear insights and explain the benefits having one could bring to your future.
With retirement on the horizon, it’s time to make some key financial decisions and get ready for the next chapter. Want to retire early? Still supporting children financially? Looking to pay off your mortgage?
Answers to these questions will be as unique as you are. The financial choices you make now could change everything. So, here’s some suggestions on how you could afford the retirement you would like.
While how much you'll need in retirement is personal to you, here's more detail on the type of lifestyle you could expect for retirement living standards for a single person.
|
Minimum |
Moderate |
Comfortable |
---|---|---|---|
House |
Minimum£14,400 a year DIY £100 per year to maintain the condition of your property. |
Moderate£31,300 a year Some help with maintenance and decorating each year. |
Comfortable£43,100 a year Replace kitchen and bathroom every 10/15 years. |
Food |
Minimum£14,400 a year Around £50 a week on groceries, £25 a month on food out of the home, £15 per fortnight on takeaways. |
Moderate£31,300 a year Around £55 a week on groceries. |
Comfortable£43,100 a year Around £70 a week on food. £40 a week on food out of the home & £20 a week on takeaways. |
Transport |
Minimum£14,400 a year No car, £10 per week on taxis. |
Moderate£31,300 a year 3 year old small car, replaced every 7 years. |
Comfortable£43,100 a year 3 year old small car, replaced every 5 years. |
Holidays and Leisure |
Minimum£14,400 a year A week long UK holiday. Basic TV and broadband plus a streaming service. |
Moderate£31,300 a year A fortnight 3* all inclusive holiday in the Med and a long weekend break in the UK. Basic TV and broadband plus two streaming services. |
Comfortable£43,100 a year A fortnight 4* holiday in the Med with spending money and 3 long weekend breaks in the UK. Extensive bundled broadband and TV subscription. |
Clothing |
Minimum£14,400 a year Up to £630 for clothing and footwear each year. |
Moderate£31,300 a year Up to £1,500 for clothing and footwear each year. |
Comfortable£43,100 a year Up to £1,500 for clothing and footwear each year. |
Helping others |
Minimum£14,400 a year £20 for each birthday and Christmas present. £50 a year charity donation. |
Moderate£31,300 a year £30 for each birthday and Christmas present. |
Comfortable£43,100 a year £50 for each birthday and Christmas present. |
Pro tip: You get free help and guidance through Pension Wise. You’ll also benefit from a free 60-minute appointment if over 50 and have a UK-based defined contribution pension pot.
As retirement gets closer, some will max out their pension saving as much as possible. This is the art of ‘pension stuffing’.
Got a pay rise? Stick the extra in your pension. Bonus time again? Pension. Even putting away small amounts can give your pension a real boost over time.
It’s a good idea to boost your pension as much as possible, to give yourself the best chance of a comfortable retirement.
Age |
40 |
45 |
50 |
55 |
---|---|---|---|---|
Age Monthly pension contributions required for minimum £14,400 a year in retirement |
40 £205 |
45 £265 |
50 £360 |
55 £530 |
Age Monthly pension contributions required for minimum £31,300 a year in retirement |
40 £1,405 |
45 £1,805 |
50 £2,450 |
55 £3,605 |
Age Monthly pension contributions required for minimum £43,100 a year in retirement |
40 £2,225 |
45 £2,880 |
50 £3,915 |
55 Your monthly contribution should be less than or equal to £5,000 |
There's a limit on the amount you can contribute across all of your pensions each year, tax-free.
For 2024/2025 this is £60,000 (or 100% of your earnings if you earn less than this).
State Pension
We've assumed you could receive a full state pension entitlement of £11,502 per year if at the qualifying age. We remove this from the calculation if you are under the qualifying age.
You can get a personal State Pension Forecast here.
Income Tax
We've used a basic English income tax calculation, which assumes you will not receive any additional income at retirement.
Tax treatment depends on your individual circumstances.
Your circumstances and tax rules may change in the future.
Contributions
The tool assumes that contributions will be made every year including the year of retirement, with monthly contributions annualised for calculation purposes. With the results showing any contributions ceasing before age 75.
Growth Rate
We've assumed a growth rate of 5% per year to your pension value, annualised for calculation purposes.
Inflation
We've assumed a 2% inflation rate in line with current FCA guidance, annualised for calculation purposes.
Charges
We've assumed a charge of 0.7% per year, annualised for calculation purposes.
Tax-Free Lump Sum
We've assumed that a 25% tax-free lump sum will be taken out of your pension, and the full amount of projected pension will be taken as income. However, it is possible to amend this percentage.
Retirement Living Standards
We use estimations from the PLSA/Loughborough University Retirement Living Standards for a single person.
Withdrawal rate
We've assumed that you are taking a guaranteed income for life, also known as an annuity at 4% per year of the projected funds. This will be after any tax-free cash up to 25% has been taken.
Pension allowances
We've not assumed any tax charges from exceeding allowances such as the annual allowance or money purchase annual allowance.
Net and Gross Figures
All of the figures we provide are net (i.e. after deduction of income tax) except for the gross monthly pension contribution figure.
Early retirement is a bucket list dream for many. The secret? Build a range of income sources you can take at different ages – savings, pension income, dividends, and then the State Pension from age 66 (soon to be 67).
Private pension savings give you more flexibility. You can start drawing your private pension from 55 and make withdrawals that fit your lifestyle – either in regular monthly amounts, or on an ad-hoc basis.
If you want to retire before age 55, or reduce your taxable income, max out those ISA savings (you can squirrel away £20,000 a year into ISAs).
ISAs can be accessed from age 18 or above and are tax-free at the point of withdrawal. If you’re married or in a civil partnership, you could benefit from using your partner’s ISA allowance – taking your household ISA total to £40,000 a year.
Tax treatment depends on individual circumstances and may be subject to change in the future.
Our experts can talk you through your retirement goals. Book a free financial coaching session. Or, if you have at least £100,000 in savings, pensions and investments, or £100,000 sole annual income, our partners Schroders Personal Wealth could help create a financial plan based on your circumstances and goals. Fees and charges will apply if you take out a product or service.
Paying off your mortgage early – either by overpaying each month or through a lump sum annually – could save you thousands of pounds in interest on the debt, depending on your mortgage rate.
If you're getting close to retirement, being mortgage-free could be a big relief and keep your main costs down.
But say you're still 10 years or more away from retirement. Upping your pension contributions could give you much more wealth to play with when you do decide to quit work – especially if the rate of return on your investment outstrips the interest rate you’re paying on your mortgage.
Pay off your mortgage or prioritise paying into your pension? There is no easy answer but this table can help you weigh up the options.
Overpaying |
Savings |
Investing |
|
---|---|---|---|
Overpayingthe mortgage Return |
Savings Avoiding interest |
Investingin a pension Earn annual or monthly interest |
Potential returns, depending on investment and risk level, plus tax relief |
Overpayingthe mortgage Risk |
Savings If you pay off your mortgage early, or overpay by more than your lender allows, you may have to pay an early repayment charge |
Investingin a pension Inflation could chip away at the value of your money. |
Returns are linked to how your investment performs |
Overpayingthe mortgage Accessing the money |
Savings Once you've used money to overpay your mortgage, you can't get it back easily (unless re-mortgaging) |
Investingin a pension Typically accessible at any time |
Your money is accessible from age 55 (57 from 2028) |
Overpayingthe mortgage Contributions |
Savings Depends on your lender. Some will let you pay off what you'd like, while others cap the amount that you can overpay |
Investingin a pension Flexible - can normally be increased or decreased at any time |
Flexible - can normally be increased or decreased at any time |
Overpayingthe mortgage Psychological benefits |
Savings Being mortgage-free can give you financial peace of mind |
Investingin a pension Security that you won't lose money, but be mindful of inflation |
Growing your pension may increase your financial security into retirement |
Taking time to understand and plan your finances can help give you the retirement you want. You've worked hard, now claim your rewards.
Still have more questions? Why not book a one-to-one appointment with one of our Financial Coaches.
Important information – This article isn’t personal advice. If you’d like to discuss any of the topics covered here, including the actions for your individual circumstances, please contact your financial adviser. If you do not have a financial adviser, you may be able to access one through our partnership with Schroders Personal Wealth (fees and eligibility criteria apply). Unbiased is a service that finds a local adviser based on your requirements. You can also find mortgage brokers, accountants, and solicitors on Unbiased.
The contents of this page are accurate as of 10/01/2025. Our views and references to pensions, tax, investment, or their rules, may have changed since then.