Saving into a pension may sound daunting.
Last year, consumer group Which? revealed that 51% of people yet to retire weren’t sure how much money they’d need for a ‘comfortable’ retirement.
Thankfully, the Pension and Lifetime Savings Association (PLSA) has developed a ‘Retirement Living Standards’ guide to help you make sense of your financial future.
According to PLSA, £59,000 per annum is needed for a married couple to comfortably retire in 2025. This amount would cover basic expenditure as well as some luxuries, such as European holidays, hobbies and eating out.
For a ‘moderate’ lifestyle, it’s currently £43,100, while a ‘minimum’ equates to £22,400.
What’s not good news is that the figures above are net, not gross, meaning after tax.
However, it’s not all doom and gloom, as every bit of saving adds up. An individual putting £30 a month into a pension from the age of 25 would end up with a total pot worth £54,000 (assuming investment growth of 5% a year), says Cavan Halley of Parallel Wealth Management.
‘Quite simply, the more you can contribute to a pension, the better,’ he adds. ‘The earlier you start, the more you can benefit from “compound interest”, which essentially translates as growth upon growth.’
As an example, with a net growth rate of 6% a year, your pension would double every 12 years.
How to choose a private pension
There are many companies offering private pensions. You may see them referred to as a Sipp (Self-Invested Private Pension) or a stakeholder pension.
First, there are pensions offered by insurers or high street banks such as Aviva, Standard Life, Scottish Widows, and Halifax. Monthly payments can be low – starting from £25 a month – and you have the flexibility to stop and start payments as you wish.
With these stakeholder pensions, you select a lifestyle profile, and the provider will invest your money on your behalf.
If you want more control over your investments, then a Sipp could be another alternative. Sipps are again offered by many providers. The difference from a stakeholder plan is that you have full choice over how you invest your money. Many people will choose to invest in funds or company shares, although you can choose other alternative investments, such as gold and commercial property.
Sipps are offered by online investment platforms such as Hargreaves Lansdown, Fidelity, Vanguard, and AJ Bell. There are also newer digital players such as Nutmeg, Moneyfarm, Moneybox, and Freetrade.
You can pay as little as £20 a month into a Sipp, and again, there is flexibility over stopping and starting payments. You could also pay lump sums on an ad hoc basis, which may suit self-employed people who do not receive a regular salary.
Make sure the provider is registered with the Financial Conduct Authority.
Who is eligible for a State Pension?
Anyone who has worked in the UK and paid sufficient National Insurance contributions is eligible to receive the State Pension when they reach their retirement age. The amount you get is based on how much National Insurance you have paid over your working life.
Some people who are already retired receive the ‘old’ state pension.
State Pension amount for 2025
Anyone retiring now gets the new state pension, £230.25 per week. This is £11,973 per year, and approximately £997.75 per month.
The amount is reviewed every year under current rules known as the ‘triple lock’. The Government says this ‘guarantees that the State Pension increases annually by the highest of inflation, average earnings growth or 2.5%,’ and ‘means the basic and new State Pensions are increasing by 4.1%, well above the current level of inflation.’
What is the State Pension age?
Currently, the State Pension age is 66. However, according to the Government website, this will increase to 67 between 2026 and 2028. It also states an increase to 68 is scheduled between 2044 and 2046.
You can check your State Pension age online.
Defined contribution/workplace pension
Anyone who works for a company, or part-time or full-time for an individual or family, is automatically enrolled into a workplace pension.
Current rules mean your employer must put a minimum of 3% of your annual salary into your company pension, while personal contributions are set at a default 5%. This is to meet the total minimum contribution requirement of 8%.
However, you can put more than this into your pension, or opt out of paying your own contributions. A word of warning: stopping a pension is highly likely to have a seriously detrimental effect on the amount you have when you retire.
Defined benefit/final salary pension
The opposite of defined contribution, this type of pension defines the amount you receive after you retire.
The benefit amount is set. However, unless you’ve been working for the same company for a long time, it’s highly unlikely you’ll have one of these.
They’re usually referred to as gold-plated pensions because they promise to pay you a proportion of your annual salary after you retire every year for the rest of your life.
More Trending
Normally, the calculation is around 1/60th of your final salary multiplied by the number of years you worked at the company.
The Self-invested personal pension, or Sipp
Anyone can set up a personal pension and put money into it to benefit from generous tax relief paid by the government. There are different kinds, but the most popular is the Sipp.
Deals of the Day
Craving sun, city streets or theme parks holdays? This £99 mystery deal has it all
11 of the best expert-approved running shoes to buy now
Tour Emily in Paris Season 6 Rome hotspots with a getaway from just £79pp
9 carry‑on travel essentials that transform economy flights into total comfort
The 10 best European city breaks under £150 to shop now – from Disneyland Paris to Venice
You decide how much you pay in and how it is invested. Lots of people manage their Sipp themselves, or you can pay for independent financial advice to help you choose a plan that’s right for you.
Martin Lewis warns UK savers over £20,000 tax-free ISA being ‘killed off’
As Chancellor Rachel Reeves looks to evaluate cash ISAs, Martin Lewis warns that the £20,000 tax-free savings limit could be ‘killed off’ in the very near future.
In a recent edition of his newsletter, the Money Saving Expert founder added weight to rumours that the threshold will be cut to just £4,000 later in 2025.
Metro’s Rosie Murray-West looked at three tax-free saving alternatives.
MORE: This serum by The INKEY List is clinically-proven to visibly boost the skin’s glow
MORE: From Samsung to Scrub Daddy – here’s our expert’s 18 best buys for this weekend
MORE: The little trick that will get you into this Summer’s hottest music festivals free
