What is a pension pot?
A pension pot is the total amount of money you and your employer contribute to your pension scheme throughout your working life and includes any growth it may have made over the years.
In addition to a workplace or private pension, you may be eligible for the State Pension, which will also contribute towards your overall retirement income. The current age you can claim your state pension is 67 - check when you will be eligible on the Goverment's website.
In this guide, we explain your options for generating the best income from your pension savings. If you want to see how much retirement income you could get, use our pension pot calculator.
What is a good pension pot?
A good pension pot will provide sufficient income to support the type of lifestyle you want in retirement. Typically, experts suggest that you should aim for a pot that along with the state benefit gives you between 50% to 70% of your working income.
According to the Retirement Living Standards, the amount required for a minimum standard of living is £14,400 for an individual and £22,400 a year for a couple. That is almost £3,000 higher than the full state pension payment of £11,502.
What’s more, for a moderate standard of living that offers greater security and flexibility, an individual and couple would require £31,300 and £43,100 a year respectively, or £43,100 and £59,000 a year for a comfortable lifestyle that allows you to be more spontaneous with your money.
What are my pension income options?
When deciding how to use your pot, you are free to choose any of the following pension income options:
- Take a tax-free lump sum - Withdraw up to 25% of your pension pot as a tax-free lump sum
- Defer your pension - Leave it untouched for now and continue to work
- Buy an annuity with some or all of your pension pot to give yourself a guaranteed income
- Use pension drawdown to give yourself a more ‘flexible’ income
- Combine any of these options if you have enough to do so
- Cash in your whole pension pot - you can find more information on this option in our 'frequently asked questions'
Whichever you select, it’s important to understand the rules and tax implications involved.
How much income will my pension pot give me?
How much income your pension pot will generate will depend on your age and appetite for risk. You also need to consider your life expectancy, to gauge how long you think you’ll need your pension to pay out for.
The average life expectancy for a 65 year old today in the UK is 85 years old for a male and 87 for a female, which means half the UK population who reach 65 can expect to live longer than these averages.
Choosing the best way to generate an income based on life expectancy, when you don’t know how long you’re going to live, can be a complex decision. This is where speaking to a specialist retirement financial adviser like Age Partnership could help.
Our expert says: Its worth noting that whilst financial advice comes at a cost, the International Longevity Centre, reported that on average those who paid for advice were £48,000 better off. Many advisers offer the first consultation for free. So, if you’re not sure whether you need advice, you can make an appointment to find out what they can do for you.
Try our pension pot calculator
Please use the calculator to find out how much income your pension pot will provide - enter your details and within 2 minutes you will have a detailed quote.
Why use our calculator?
Free to use and no obligation
It costs nothing and there’s no obligation to go any further if you don’t want to.
Free access to Age Partnership’s Pension Income Service
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Your choice of pension advice or guidance only
Age Partnership’s experts can give you pension advice and recommendations or guidance only if you’re comfortable making your own decisions.
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You can nominate how much cash you'd like to take up front and then compare annuities and pension drawdown options from many of the UK’s leading providers.
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Pension pot FAQs
What's the average pension pot in the UK?
According to official figures, the average UK pension pot ranges from £37,000 to £95,000; the reason for this large range is that younger people usually have smaller pots, but as you get closer to retirement and have paid more in to your pension, the size of your pot is significantly larger.
The Department for Work & Pensions states that the average single pensioner receives approximately £349 a week, just over £18,000 a year. (After taxes and housing costs).
When can I withdraw my money from my pension?
You can usually start making withdrawals from your pension pot at the age of 55.
It's possible that you could start taking your pension earlier if you need to retire due to ill health or disability, but you would need to check the terms set by your pension provider.
If you’re getting close to retirement age, watch out for pension scams. Fraudsters could offer you spurious advice about withdrawing and investing your pension. In particular, be wary of anyone suggesting that you could start withdrawing your pension before your 55th birthday.
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You can usually start making withdrawals from your pension pot at the age of 55.
It's possible that you could start taking your pension earlier if you need to retire due to ill health or disability, but you would need to check the terms set by your pension provider.
If you’re getting close to retirement age, watch out for pension scams. Fraudsters could offer you spurious advice about withdrawing and investing your pension. In particular, be wary of anyone suggesting that you could start withdrawing your pension before your 55th birthday.