How much do I need to save for retirement?
Important information: the value of investments and income from them can go down as well as up so you may not get back what you invest. Eligibility to invest in a SIPP and tax treatment depends on personal circumstances and all tax rules may change in the future. You cannot normally access money in a SIPP until age 55 (57 from 2028). It’s important to understand that pension transfers are a complex area and may not be suitable for everyone.
It’s a tough question, and one that’s not only asked by older people but by many younger workers too. What you really need to know is how much you need to save, and by when. If you know these things you can begin to get your finances fit for retirement.
Further down we’ll show you how to do that but, if you want a quick answer, Fidelity’s research1 found that UK households who manage to save seven times their annual household income by the age of 68 should be able to retire and maintain a similar standard of living as in their working life. Please note that the figures quoted are generic assumptions and estimations; they are not personalised and are not a replacement for professional advice. They’re based on average household incomes in the UK with typically two working adults and two state pensions. They may not represent what will actually happen in the future, because no one knows that. You can, however, use the figures quoted as high-level guidelines to retirement planning and saving. You can read how we do our calculations at fidelity.co.uk/guideline-calculations.
While a goal of seven may sound challenging, the key is to start as early as possible and aim to meet a series of savings milestones along the way. Our analysis1 suggests UK households aim to have at least one times their annual income by the age of 30. Here’s a further breakdown by age.
| Age | Income Multiple |
|---|---|
| 30 | x1 |
| 40 | x2 |
| 50 | x4 |
| 60 | x6 |
| 68 | x7 |
How much income do you need to live on in retirement?
To plan your retirement target more precisely, this is the first question to answer. The reality is that you are likely to have less income to live on in retirement than in your working life. But the good news is that your living costs are likely to be lower as well.
With some luck you will have cleared any debts by the time you stop working, including having no mortgage to pay. Children will be grown up and should now need less financial support and there’s some tax advantages - no National Insurance to pay after you reach your State Pension Age, for example - and social security entitlements which means you can keep more of your money.
And remember - when you are working a proportion of your salary may be taken up by savings contributions, whether into a pension or elsewhere. These can be reduced or stopped in retirement.
It’s sometimes said that you’ll need a retirement income that is two-thirds of your pre-retirement income to maintain your standard of living.
Recent research from the Pensions and Lifetime Savings Association2 found that a single person will need roughly £23,300 a year to achieve a moderate living standard in retirement, and £37,300 for a comfortable one. This is a good goal to have in mind but may be tough for many to reach.
It can be helpful to work out what your costs in retirement may be. Use a tool like Fidelity’s Retirement Calculator. It lets you enter amounts you think you’ll spend on various essential and non-essential items, like food, holidays, car running costs and entertainment.
It’s a simple tool but useful in giving you a cash estimate of the income you may need each year.
How much State Pension will you get - and when?
Most people will be able to rely on the State Pension to provide some of their retirement income. The current full State Pension income is £203.85 a week and this is hugely valuable because the income is guaranteed and will rise broadly in line with the cost of living. That means it can be there to cover the most essential costs, like housing, bills and food.
You can check to see if you are on course for a full State Pension by using the Government’s forecasting tool. You also need to know when your State Pension will begin. You can find that out here.
Working out other sources of guaranteed income
Along with the State Pension, some people will be able to rely on other guaranteed income in retirement, for example from Defined Benefit pensions or buy-to-let property. Just like the State Pension, this is valuable because you can rely on it to cover your essential needs so you won’t have to use pension savings to provide that income.
How much income will your pension savings give you?
Once you have an idea of what your costs in retirement will be, and the guaranteed income you’ll have to meet them, you can work out how much work your pension savings will have to do on top - and whether they will be enough. Be warned - this can be a shock!
Fidelity’s MyPlan tool can show you the kind of pension pot you’re headed for, and an estimate of the income this will provide.
These are the results for a person aged 45, earning £60,000 a year, with £100,000 already saved and setting aside a further £700 a month for their retirement. They have selected a moderate investment style, and have specified that they would like to replace 60% of their pre-retirement salary with retirement income when the retire at 68, and they have other sources of income in retirement worth 10% on their current income.
All these variables can be changed in the tool to see what effect they have. MyPlan works out that they would need a pension pot worth £409,000 to achieve their goals. These figures relate to past performance and are not guide of what might happen in the future.
The full assumptions and methodology for MyPlan can be found at https://www.fidelity.co.uk/retirement/calculators/my-plan/
Based on the same calculations and savings assumptions as the example above, the tool also shows you the results in terms of the income you could expect. It is based on purchasing an annuity but bear in mind that there are several different ways to turn your pension savings into an income. (See below)
Enter your details to see how your saving stacks up. If the results show you coming up short, don’t worry. By altering your level of savings, your retirement age and the level of risk you take with your pension pot, you may be able to bring things back on track.
If more drastic action is needed, consider how you’ll manage on a lower proportion of your current salary in retirement.
What kind of income might suit you best?
There are different ways to turn your pension savings into an income. You could consider using pension drawdown an annuity or a combination of both. There’s a full explanation of the ways to access your pension savings here.
Pension drawdown allows you to take the income you want, whenever you need it - giving you total flexibility over your retirement savings. As your money remains invested, it has the potential to continue to grow and provide for your future (although this isn't guaranteed). It'll keep benefitting from tax efficiencies too. It can also be passed onto your loved ones when you die without Inheritance Tax applying.
Annuities provide you with a lifelong, regular income that is guaranteed to last as long as you live, providing peace of mind. However, unless you choose an increasing annuity, the income you receive will remain the same each year, therefore with the effects of inflation, it will buy less as the years go by. Also, you won’t benefit from economic or stock-market growth.
How to turn your pension savings into an income needs to be carefully considered. The Government offers a free and impartial guidance service to help you understand your options at retirement. This is available via the web, telephone or face-to-face through the Pension Wise service which is now part of MoneyHelper; the easy way to get free help for all your pension and money choices. You can find out more by going to moneyhelper.org.uk or call them on 0800 011 3797.
You might also find it helpful to get support with from Fidelity’s Retirement Service. Our retirement specialists can provide free guidance to help with decisions or paid-for advice with personalised recommendations based on your circumstances. And we can also support with bringing your pensions together, for easier access to your retirement savings if you decide this is right for you. Simply call 0800 368 6882 or visit Fidelity retirement service to find out more.
Important information: Please note that this information and our guidance tools are not a personal recommendation in respect of a particular investment. If you need additional help, please speak to one of Fidelity’s advisers or an authorised financial adviser of your choice. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals.
Source:
1Fidelity International’s Retirement Savings Guidelines Sept 2020.
2Pensions and Lifetime Savings Association – UK Retirement Living Standards November 2022.
Make the most of your pensions by bringing them together
If you’ve got pensions spread across different providers, moving them to Fidelity could help you take control and manage your money more effectively. Plus get £200 to £2,000 cashback. Exclusions, T&Cs apply.
Go to offer
Cash Back Offer – terms and conditions
This Cash Back Offer (the “Offer”) is available when you apply to transfer your pension(s), ISAs or other investment account assets between 27th November 2023 and midnight on 1st April 2024.
- The promoter of this offer is Financial Administration Services Limited (“Fidelity”), Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey, KT20 6RP.
- Subject to section 5, the Offer is available to anyone who completes a transfer of their assets from other providers to Fidelity Personal Investing. This offer is not open to those that transfer via an adviser or intermediary. To transfer assets, you must submit a correctly completed transfer application form online or by paper by 1st April 2024.
- Cash Back will be paid in the amounts noted in the table in section 9. If you transfer less than £25,000 you will not receive any Cash Back. The minimum transfer value for all products is £100. However, if you are transferring a pension from another provider and you’re immediately going to start taking money from it, known as pension drawdown, the minimum transfer value is £50,000.
- The following types of transfer will qualify for the Offer:
- Cash transfer within ISAs and pension products – If you transfer in cash within ISAs and pensions, the provider you are transferring from will sell your investments and send the proceeds directly to us. We will hold them as cash within your account until you decide what you would like to invest in.
- Re-registration – With this type of transfer, you can keep the same investments as long as they're available on our platform. Where required, we will work with your existing provider to convert your units into a share class we can support before transferring them to us. Please note that a further conversion may be required to move you into the cheapest available share class on our platform. If a cheaper share class is available, we will also convert any existing holdings of that share class in your account. During this time, you will not be out of the market, and you may temporarily be converted into a share class with higher charges to facilitate the transfer. The share class conversion activity might take a few days and you will probably have a different number of units in the fund after you move as the prices of different share classes of the same fund are normally different.
If you hold an investment in a pension or ISA that is not available through our Investment Platform or is otherwise unable to be re-registered* it will be moved to us as a cash transfer (see above). Any investments held outside of a pension or ISA that cannot be re-registered will not be transferred to us. They will remain with the previous provider and will not count towards your total transfer value for the Offer. A re-registration does not count as a “disposal” for capital gains tax purposes, even if we switch your investment into a different share class. Please note that the minimum SIPP re-registration value is £100.
*Re-registration is not available for some products on the Fidelity Investment Platform. For example, a number of offshore funds cannot be re-registered. You can check what assets are available on our platform here.
- This Offer excludes:
- transfers of assets held in a product/account provided or administered by any company within Fidelity’s group of companies including, without limitation, transfers from the EBS SIPP and the Fidelity Personal Pension, or Fidelity Adviser Solutions (formerly FundsNetwork) SIPP, provided by Standard Life;
- transfers of assets currently held through Fidelity Adviser Solutions (formerly FundsNetwork);
- transfers from any defined contribution pension scheme investments held with, or in relation to, a current employer through, or administered by, a Fidelity group company;
- transfers of any defined benefit, safeguarded benefit or otherwise guaranteed pensions;
- transfers which are linked to an adviser or intermediary;
- transfer of Junior SIPPs; Junior ISAs and
- transfer of Lifetime ISAs (LISA)
- the lodgement of certificated shares
- The Offer will also not apply to assets that are currently held in a product/account provided or administered by any company within Fidelity’s group of companies which are transferred to another provider and then moved to Fidelity Personal Investing.
- Any other new investment will not qualify for the Offer.
- Any transferred assets will be subject to the applicable client terms for the product your assets have been transferred to.
- The amount of your Cash Back payment will be determined by reference to the “Total Transfer Value” as set out in the table below. Total transfer value will be calculated as at the date of completion of the transfer of your eligible assets (“Transfer Date”). If you transfer more than one product the Transfer Date will be the date when all the transfers have been completed.
Total Transfer Value Cash Back Amount £25,000 - £49,999 £200 £50,000 - £99,999 £500 £100,000 - £249,999 £1,000 £250,000 - £749,999 £1,250 £750,000 - £999,999 £1,500 £1,000,000 or over £2,000 - Cash Back payments will be paid to your Cash Management Account (CMA) within 90 days following closure of the Offer (1st April 2024). If the transfer of all of your eligible assets has not completed by then, we will pay within 90 days of your Transfer Date. The CMA is a separate account in your name that helps manage cash. The Cash Back can be kept in your CMA for fee collection, withdrawn or moved into whichever Fidelity Personal Investing account you choose. If moved into an ISA or SIPP, it will count towards your annual allowance.
- We ask that the assets you move to us as part of this Offer be held with us for at least 18 months after your Transfer Date and must not be linked to any adviser or intermediary other than a Fidelity adviser during this period. If you transfer or re-register your assets to another provider within this 18-month period, Fidelity reserves the right to reclaim any Cash Back payment that was made to you as part of this Offer. For the avoidance doubt, if during this period you link to a Fidelity adviser and your assets are transferred to Fidelity Adviser Solutions (formerly FundsNetwork) this does not constitute a transfer to another provider. Fidelity reclaim any Cash Back by withholding an amount prior to transferring or re-registering your assets to another provider. We will not reclaim any Cash Back from assets within a SIPP, other pension or ISA. Withdrawals from your account/s or income payment will not count as transfers for the purposes of this condition and will not result in our reclaiming your cash back payment.
We promote offers on a regular basis. However, it is important that you take enough time to decide whether transferring your investment(s) to us is right for you. If you need more time and wish to qualify for the offer, please wait until the next offer period.
Issued by Financial Administration Services Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and the F symbol are trademarks of FIL Limited.
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