Wealth Planning -

How much should I have saved for my pension?

The amount you need to save toward your pension depends on how much you want to live on when you retire.

Man looking at field


The amount you need to save toward your pension depends on how much you want to live on when you retire.

To take a simple example:

The mean UK average wage is £38,131.

If someone was earning the UK average wage upon retirement today, assuming a retirement age of 65, and wanted to maintain their current lifestyle, data suggests that the average person would need enough in their pension pot to guarantee that income for around a 21 year retirement, based on current life expectancy statistics.

That works out at around £800,751 (pre-tax).

However, there are other important considerations that this simple calculation does not account for, and cashflow modelling is a better way of working out how much you might need.

Cashflow modelling considers factors beyond just your own goals, like inflation and the assumed growth in the value of your investments. It can also consider one-off events such as downsizing your home or receiving an inheritance. This can help form a picture of how much you need to save each month.

How much money should I save each month for my pension?

The benefit of compounding means that your gains – in theory – get exponentially bigger over a longer period, as illustrated in the graph below.

So, the earlier you start, the more you can amass over time. With any excess income, it is important to balance the amount you pay into your pension with your other needs. A wealth planner can help you find the optimal mix.



The illustrative example above shows the projected outcomes of someone starting to put £200 a month into a standard workplace pension* from the age of 20.


Savings amount per month

Projected savings aged 55

Projected savings aged 68











The best way to save for a pension

Whatever your goal, it will be difficult to reach these figures simply saving by yourself.

While there are many types of personal savings plans available, many use their work-provided scheme as their main form of pension planning. Schemes can differ, but they can offer some, or all the following benefits:

  • Tax efficiency - pension contributions are often deducted before tax and National Insurance contributions are calculated , although be aware there are limits to your tax-free allowances.
  • Assets inside a pension grow free from income tax and capital gains tax (and can be passed on free of inheritance tax).
  • Employer contributions - employers must contribute a percentage towards your workplace pension.
  • Compound gains – if it is invested well, the pot also grows over time above your own investment.

The crucial component here is the compounding factor and this is why it is so crucial to begin saving as early as possible for your pension.



Starting point


End year














To put this into context, if you invested $100,000; in the S&P 500 at the beginning of 1991, without making further contributions, you would have amassed $2.7 million at the end of 2021; that equates to 2,617% [1].

Paul Clifton, Director, Wealth Planning at Arbuthnot Latham said:“Pensions form a key part of most people’s wealth strategies. From initial tax benefits and employer contributions to inheritance tax benefits, they are one of the most efficient investment vehicles. However, there are many elements to consider from risk appetite to when and how you might want to access your pension. There is no “one size fits all” approach, and professional financial advice is key to ensure your wealth management strategy is designed to meet your future financial – and lifestyle – goals.”

*Default assumptions:

Assumptions are made to include Investment Class Growth Rates, Inflation and Asset Allocation.


Inflation / Growth Rates

  • Type Value
  • Inflation 2.5%
  • Savings Growth Rate 0.5%
  • Investment Growth Rate 6%
  • Property Growth Rate 2.5%
  • Salary Growth Rate 3%
  • Annuity Assumed Interest Rate 3.5%
  • Tax Table Assumptions 4%
  • Consumer Price Index 2%
  • Retail Price Index 2.5%
  • 15 year Gilt Rate 6%
  • Nil Rate Band 0%
  • Life Insurance Expense 0%

Investment Fees

  • Investment Fees Rate
  • Investments 0%
  • Savings 0%
  • Tax Deferred 0%
  • Tax Free Savings Account 0%

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