How to build your best pension pot
Will you really have enough to retire? According to a 2024 study, 74% of British people are not on track to maintain their current standard of living in retirement.
Many people are simply underestimating how much they need in their pensions, neglecting “hidden” costs in later life (e.g. healthcare and inflation).
The good news? It isn’t too late to start taking control. For those in their 40s, 50s and 60s who are asking: “Is my pension on track?”, this guide offers practical, proven ideas for growing your pension pot – making the most of what you already have.
Know your numbers
How much will you need for a comfortable retirement? There is no universal answer. Rather, it depends on your unique financial goals, situation and needs.
A useful starting point is to estimate your salary just before retirement and cut it by two-thirds. Then, multiply it by 30. For instance, if you expect to earn £30,000 just before retirement, you may need a retirement income of £20,000 to sustain your lifestyle. Multiply that by 30 and the “target number” for a total retirement pot becomes £600,000.
This is, of course, a huge simplification – not taking into account factors like your State Pension, inflation, tax and investment returns. It can give you a rough estimate, but we recommend talking to a financial adviser to arrive at the most accurate target numbers.
Gather your pension information
Next, review your current position. What do your pensions look like right now? To limit getting overwhelmed, start with your State Pension. You can quickly get a forecast of your future State Pension income for free using the HMRC online app.
Your State Pension is largely determined by your National Insurance (NI) record. If you have 35 “qualifying years” on your record, you are likely to be entitled to the full new State Pension. This is £230.25 a week in 2025-26 – i.e. £11,973 per year.
If there are “gaps” on your record (incomplete/missing years), make a note. This could be useful to your pension strategy later.
Next, turn to your other pensions. Do you have any private pensions (e.g. a SIPP)? Track them down and take note of the funds. Similarly, look over your career and locate your old workplace pensions. This might involve contacting old employers or using the Pension Tracing Service.
Identify your pension gap
With your target retirement number(s) and current pension assets gathered, you can start to get an idea of the “distance” between your current financial position and where you want to be.
For instance, suppose your target retirement number is £600,000 and you have £300,000 saved across your pension pots. Setting aside your State Pension, that means gaining an extra £300k before retirement.
Here, you need to ask yourself some key questions:
- How long until my retirement date? E.g. if you plan to retire in 10 years, that probably means adding a yearly average of £30,000 to your nest egg.
- How much can be added via investment growth? For instance, if your current £300k pot grows by 5% per year over 10 years, this could add about £194,000 to the nest egg.
- How might your plans be affected by unforeseen circumstances? In particular, what if the market falls just before you retire? Depending on your investment strategy, your pension could fall as you start taking benefits.
- How might your expenses change in later life? Perhaps certain costs will go down (e.g. daily commute to work, mortgage, etc). However, other costs might rise, such as dining out, travelling and taking up hobbies. The economy might also change, affecting these prices outside your control.
- How much can you afford to contribute towards your pension now?
These are just a few questions that need to be addressed. A financial adviser can guide you through them, giving you maximum peace of mind and ensuring nothing is overlooked.
Putting your plan into action
After agreeing on action steps with your adviser, it’s time to start implementing them.
One step might involve maximising workplace pension contributions. For instance, if your employer offers a “matching scheme” up to 10%, then making a 10% monthly contribution will effectively double the money you put into your pension.
Pension contributions also typically benefit from tax relief equivalent to your highest marginal rate. In simple terms, tax relief puts the money you would have paid in tax to the government into your pension instead.
For a basic rate taxpayer, the relief is 20% – meaning it only “costs” you 80p to put £1 into your pension. Higher and additional rate taxpayers can claim extra relief, but this needs to be done manually via Self Assessment.
Some readers may benefit from “consolidating” certain pension pots – i.e. combining the funds into a single pot. This can offer easier management, potential cost savings and more investment control. However, speak with an adviser before doing this.
If you’d like to make sure you’re taking the right steps to safeguard your pension and financial future, please get in touch.
Pension investments can go down as well as up. Pension access is normally at age 55 (rising to 57 in 2028). Tax benefits depend on HMRC rules which may change. Information provided is general and does not constitute personal financial advice. Readers should seek independent financial advice before acting on any plans.
