77% of pension pots below £50k

18 October 2024

Written by Retirement Line

A significant 77% of pension pots in the UK mature with less than £50,000 each year, according to recent findings from Bowmore Financial Planning. 

The figure, which equates to over 550,000 pots per year below £50k, is a stark reminder of the challenges many retirees are facing to secure a comfortable retirement income. It also highlights a growing concern: are people saving enough to sustain themselves in later life?

While some people have other sources of income beyond the State Pension, such as personal savings or property, the pension pot is still a critical part of retirement income planning for many.

The data, explored in an FT Adviser article, also reveals that 43% of maturing pension pots held less than £10,000. This compares with the 5% of pension pots holding more than £250,000. 

According to Bowmore, the low size of pension pots has been partly caused by workers choosing to defer investing into their pots during the cost-of-living crisis.

A separate report from iPipeline and Retirement Review in November 2023 found that UK savers aged 40 to 66 aim for an average pension pot of £223,503. However, many are falling short of this goal. The average pension pot then stood at £167,891, and 23% of savers had less than £50,000 in their pension savings. Additionally, 37% of people didn't have a specific savings target in mind.

£14,400 income needed for minimum retirement

There is concern that many people will retire with small pension funds that may not be enough to fund the financial freedom many hope for in retirement. And for others, their pension savings may not even cover essential living expenses.

Research from the Pensions and Lifetime Savings Association (PLSA) reveals that the average level of annual income required for a single person wanting a minimum standard of retirement is £14,400, rising to £22,400 for couples. 

According to the PLSA’s Retirement Living Standards, to enjoy a comfortable retirement the figures jump to £43,000 for a single person and £59,000 for couples.

The full new State Pension currently takes care of the first £11,502 per person. But someone retiring with a small pension pot and little in the way of savings and investments may struggle to live the retirement they hope for.

Laurence O’Brien, research economist at the Institute for Fiscal Studies comments: "While the state pension now provides a strong foundation income in retirement, most will want or need to supplement that.”

Could pension pots get bigger in the future?

While the current statistics may seem discouraging, there is ongoing work to address the issue of under-saving. Notably, the government has a pensions review ongoing, with a focus on strategies to boost pension contributions and encourage more effective saving.

In addition, several awareness campaigns are actively highlighting the importance of saving more during working years. The Pensions Awareness Campaign, for instance, runs an annual Pension Awareness Week. Free advice and guidance are provided through webinars and live chats. It aims to help people understand the importance of increasing contributions early on.

The Department for Work and Pensions (DWP) also supports this effort, particularly by promoting the benefits of auto-enrolment. These collective efforts are designed to ensure that workers, especially those approaching retirement, are better prepared financially for later life.

So, while the current situation presents challenges for many approaching retirement, there are positive steps being taken to improve pension outcomes for future generations. The key takeaway is the importance of reviewing your own pension situation, making changes where needed to get on track for the retirement you want.