Am I saving enough for retirement?

Determining how much you need to save for retirement in your pension can be a tricky calculation because it involves a lot of unknowns.

Just 18% of people have a figure for how much they believe they will need for retirement, and only 20% are confident they are saving enough, according to the Pension & Lifetime Savings Association (PLSA).

By accounting for the amount held in your pension as well as your state pension allowance, you can begin to form a picture of how much you have saved, how far it will be able to take you, and how much more you might to put away.

To simplify this process, you may also consider combining your pensions into a single pot. Each workplace has its own pension scheme as part of pension auto enrolments, so if you’ve moved to different companies, you could have your money spread across different accounts. Putting these together can allow you to form a clearer picture of what you have saved.

How much will retirement cost?

It’s impossible to know the exact amount your retirement will cost, but the PLSA has put together some estimates for how much money you would need annually to maintain a minimum, moderate, or comfortable lifestyle.

Currently, it estimates a moderate lifestyle costing £31,300 per year (£43,100 for a couple) and a comfortable lifestyle at £43,100 per year (£59,000 for a couple). These costs do not include any rent or mortgage payments and do not account for inflation.

It’s also important to factor in where you live in the UK because you may need more to get by if you live in a pricier region. For example, the amount for a moderate lifestyle increases to £32,800 in London.

If this does not seem like a good indicator for your lifestyle, examine how much you currently spend each year, and account for what costs will be added or removed in retirement. You may need to spend less on transport without a daily commute to the office, but if you intend to travel more, that budget may need to increase.

Depending on how far you are from retirement, inflation can also be a considerable factor. According to the Bank of England, you would need £100 today to buy the same amount of goods that would have cost about £57 in 2005.

What will I get from my state pension?

The new state pension is paid once you reach 66 (due to rise to 67 between 2026 and 2028 for those born after 5 April 1960) and the full rate is £230.25 per week, totalling just under £12,000 per year.

You need 35 qualifying years of National Insurance contributions to qualify for the full state pension. If you have between 10 and 35 qualifying years, you’ll receive a proportionate amount of the full rate.

The rules are different for men born before 6 April 1951 and women born before 6 April 1953. Here, the full basic state pension is £176.45 per week, and the number of qualifying years of NI contributions varies depending on your age and ranges between 30 and 44 years for a man and 30 to 39 years for a woman for the full amount.

The state pension does not cover what the Pensions & Lifetime Savings Association calculates as the minimum for living standards, which is £14,400 per year. It means the more elaborate the lifestyle desired in retirement, the more you’ll have to lean on your personal pension and any cash savings to fund it.