How much pension do I actually need?

Start from the income you want, not the pot you have. The arithmetic is easier backwards.

Retirement · Updated for the 2026/27 tax year

There is no single right number, but there is a reliable way to work out yours. It takes about ten minutes and starts from the end rather than the beginning.

Step 1: What income do you actually want?

Retirement spending is rarely the same as today's. The commute, the mortgage and the pension contributions themselves usually stop; travel, hobbies and later on care costs often rise. A common starting point is somewhere between half and two-thirds of your current gross salary, but the more useful exercise is to look at what you actually spend now and adjust line by line.

Step 2: Subtract the State Pension

The full new State Pension for 2026/27 is £241.30 a week — roughly £12,550 a year — and you need 35 qualifying National Insurance years to get the full amount. For a couple who both qualify, that is around £25,000 a year of guaranteed, inflation-linked income before any private pension.

Do not assume you qualify in full. Career breaks, time abroad and years of low earnings can leave gaps. Check your actual forecast at gov.uk/check-state-pension before doing any of this arithmetic — it is free and takes two minutes.

Step 3: Multiply by 25

This is the 4% guideline in reverse. The idea is that withdrawing about 4% of your pot in the first year of retirement and adjusting for inflation thereafter has historically given a good chance of the money lasting around 30 years. Multiplying your required income by 25 gives the pot that supports it.

These numbers look daunting written down. They are much less daunting when you see what employer contributions and thirty years of compounding do to them — which is the point of step four.

Step 4: The contribution that gets you there

The single biggest lever is not investment returns — it is time, followed closely by your employer's contribution. Under auto-enrolment the minimum total is 8% of qualifying earnings, of which at least 3% comes from your employer. Many employers will match more than the minimum if you increase your own contribution, and declining that is turning down a guaranteed, immediate return on your money.

Tax relief adds another layer. A basic-rate taxpayer paying £80 into a pension has £100 land in the pot. A higher-rate taxpayer can claim further relief, often through self-assessment.

Three things that quietly break the plan

• Inflation. A £500,000 pot in 25 years does not buy what £500,000 buys today. If your calculator uses nominal growth, mentally discount the result — or use a growth rate reduced by expected inflation to get a rough figure in today's money.
• Charges. An extra 1% in annual fees over thirty years can reduce a final pot substantially. It is worth knowing what your scheme charges.
• Old pensions left behind. Most people change jobs several times and lose track of pots. The government's Pension Tracing Service is free and can find them.

A word on the 4% guideline

It is a planning tool, not a promise. It came from historical US market data, assumes a particular mix of shares and bonds, and says nothing about your own circumstances. Retiring into a poor run of markets in the first few years is the main risk it does not capture. Treat 25× as a way to get a realistic target on paper, and revisit it as you get closer.

Common questions