Are you saving enough for a comfortable retirement?
If you’ve been diligently contributing to your pension for years or decades now, it’s easy to believe that you’ll build up a pot that will be enough to tick off all your bucket list items when you finally stop work.
However, new research reported by IFA Magazine suggests that 96% of high net worth individuals underestimate the amount they will need to save to enjoy a comfortable retirement.
Read on to find out why, and for three quick tips that could help you to boost your later-life income.
96% of high net worth individuals underestimate how much they need for a comfortable retirement
According to research by the Pension and Lifetime Savings Association (PLSA) an individual in the UK needs an annual income of £43,100 to enjoy a “comfortable” standard of living in retirement.
This might include a subscription to a streaming service, regular beauty treatments, a foreign holiday and several UK minibreaks a year.
If this sounds like you, you may well be underestimating how much you need to save to achieve this lifestyle.
Research reported by IFA Magazine asked high net worth individuals how much they think they need in their pension pot for a comfortable retirement.
- More than a quarter (28%) thought they would need less than £400,000
- Most (65%) thought they’d need between £200,000 and £800,000. On average, respondents thought a pot of £536,000 would be needed, while those over 55 thought they’d need £661,650.
- Just 4% said they thought they would need more than £1 million.
The average response of £536,000 would only provide an annual income of £21,400, rising to £26,500 for a pot of £661,650. This is significantly lower than the amount the PLSA say you would need for a comfortable retirement.
Even when the new State Pension of £11,502 is included, respondents are, on average, more than £10,000 a year short of what they would need for a comfortable retirement.
So, if you are underestimating how much you might need to save, here are three quick tips to boost your retirement savings.
1. Claim all the tax relief you are entitled to
One of the key benefits of saving into a pension is that you’ll usually receive tax relief at your marginal rate of Income Tax on your contributions.
So, if you’re a higher-rate taxpayer, every £1,000 pension contribution will, in effect, only “cost” you £600.
Remember that you usually can only contribute up to 100% of your earnings in an individual tax year without using the “carry forward” rules. Moreover, your tax-efficient pension contributions may be limited by the Annual Allowance (this is £60,000 in the 2024/25 tax year).
Your Annual Allowance may be lower if you are a high earner or if you have flexibly accessed a defined contribution pension.
If you are a higher- or additional-rate taxpayer, it’s important to claim this additional tax relief. This is normally done through self-assessment although you can also contact HMRC directly to claim.
Moneyweek reports that an eye-watering £1.3 billion in pension tax relief went unclaimed between 2016/17 and 2020/21. If you haven’t claimed yours, now is the time to do so – and you can claim back up to four years after the end of the tax year your claim relates to.
2. Check for lost pension pots
According to Aviva, 2.8 million Brits have an average of £10,000 sitting in lost pension policies. That’s money that you could be using towards living your desired lifestyle in retirement.
It’s easy to lose track of an old pension – perhaps from a former employer you worked for decades ago or because you have moved home and lost touch with the provider.
If you think you may have lost track of a pension, here are some tips for tracking it down:
- Find any paperwork you have relating to the scheme
- Contact former employers and request details of the scheme administrators
- Use the free Pension Tracing Service provided by the government.
Once you have details of the administrators, request an up-to-date statement of benefits so you can incorporate these into your financial plan.
3. Maximise your State Pension
The State Pension provides a guaranteed, index-linked income for the rest of your life. It is currently paid from age 66, although this is set to rise from 2026.
While it may not be sufficient to achieve your desired lifestyle in retirement, the State Pension is a valuable source of income for many retirees. In 2024/25 the full new State Pension is £11,502.
The State Pension that you receive is based on your National Insurance (NI) record. You’ll need at least 10 “qualifying years” to receive any State Pension, and 35 years to receive the full amount. A qualifying year is one where you:
- Worked and made NI contributions
- Received NI credits (for example, if you were unemployed, ill or a parent or carer)
- Paid voluntary NI contributions.
If there are any gaps in your NI record, plugging these by making additional NI contributions can help you boost your State Pension.
You can usually pay voluntary contributions for the past six years. However, if you want to make voluntary contributions for the tax years 2016/17 or 2017/18, the deadline has been extended until 5 April 2025.
The cost to fill in gaps in your NI record for the 2024/25 tax year is shown in the table below.
MoneyHelper reports that each additional qualifying year works out to be an extra £6.32 a week (or £328.64 a year) in State Pension. So, if you lived for 20 years, the amount you would get back would be more than £6,500 for an initial cost of between £179 and £907.
Making additional NI contributions could help you to maximise your State Pension and boost your later-life income.
Get in touch
If you’re concerned you are not saving enough to achieve the retirement lifestyle you desire, get in touch to find out how we can help.
Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
