Is your pension pot on track with your peers?

You might have an idea of how well-off your friends are based on the size of their home, the amount of reusable Waitrose bags they have at their disposal, or how often they tell you they’re off to the ‘ruggers’.

But how much people have stored up in their pensions is a bit trickier to deduce, especially since it can’t be accessed until age 55, rising to age 57 in April 2028.

Still, many of us would like to know if we are on a similar track to our peers, or if our pot will leave us behind others when retirement comes along. From age 25 onwards, the figures nearly double at each decade, thanks to more time for contributions, and more time for compound growth to show its full effect.

It’s important to point out that these figures are the values of SIPPs. Someone might also have a workplace pension or another personal pension elsewhere. In addition, this number is just an average, so some people will have much more in their account, while others will hold much less.

Another way to get a feel for what people may be holding in their pension specific accounts are these findings from the Office for National Statistics in their latest survey in 2022.

Assessing your pension pot

If you’re in the early years of your career, or not even started, there’s no need to panic if your pension isn’t matching these figures. Some of the people with pots in this age group would have had Junior SIPPs, which their parents or other family members could have built up over their childhood, giving them a leg up.

What may be more useful is seeing how much others are contributing to their pension. Thanks to automatic enrolment, those aged 22 or older and earning at least £10,000 through an employer will begin paying 5% of their salary into their pension, unless they choose to opt out. In addition to this, your employer will pay in 3%, and as a boost from the government, your contribution isn’t subject to income tax.

But many people choose to pay in more to help supercharge their pension.

As people inch closer to retirement, they tend to prioritise their pension more and increase contributions. Those in their 40s would also likely not have benefitted from automatic enrolment in the first years of their career, as it didn’t fully come into effect until 2018 for the smallest firms.

This is also the age where people might have a bit more money to spare for their pension, while those early in their career are more focussed on making ends meet. But those who are able to spare a bit of extra cash early on will give themselves a big leg up in the future.

Not looking up to scratch? Three steps to take

If you aren’t feeling comfortable with where your pension value sits in these figures, there are still steps you can take. To tell if you’re on track for the retirement you want, rather than what matches up with your peers, it might be more useful to use a pension calculator to see how your pot will grow in the years to retirement.

1. Look at what you’re invested in

One way to potentially increase your pot balance in the future could be to increase your risk level. This isn’t a guarantee that your money will grow, because markets can go up and down. But over time, markets have trended upwards. If you have a longer to go until retirement, for example over 10 years, you likely have long enough to ride out serious market bumps and might be able to afford more risk. For investors who are looking for a final boost before retirement, this strategy is less effective as there’s not as much time to ride out the market if something goes wrong.

Workplace pensions are a common place for people to end up with an investment that might not suit them. This is because workplace pensions have a default fund where the money is invested if they don’t make an active choice. So, someone age 24 might be in the same fund as someone close to retirement. Even if over time it averages out to just a few percentage points more each year in growth, that can mean a pension pot that’s hundreds of thousands of pounds larger down the line.

Those who have a SIPP will have chosen their own investment products already, but it’s still worth reviewing once or twice a year. You may want to check if there are more affordable investment products that could serve the same purpose or if you'd like to change your strategy from what you originally chose to meet your goals.

2. Up your contributions

Since automatic enrolment already funnels some of your income into a pension, it may feel like that’s ‘good enough’. For many people, this unfortunately isn’t the truth. The Pensions Commission recently reported there are 15 million people under-saving for their pension, with the possibility to rise to 19 million. If the numbers aren’t adding up for you, increasing your contributions is a big step towards closing the gap.

You might not have to close the gap all by yourself. Many employers have pension contribution matching schemes, which means when you increase your contribution, your employer does as well. Another perk to remember is that pension contributions are free from income tax. While there will still be less money flowing into your account if you up your contribution, remember that money has more power in your pension because it’s not suffering from income tax of 20% (or higher).

3. Don’t forget about your contribution relief

Those above the basic income tax threshold typically get tax relief that goes beyond the 20% rate, until they go beyond the £60,000 yearly contribution limit or put in more than 100% of their salary. But unlike that first 20% of tax relief, you may not automatically be getting the extra tax relief invested in your pension.

Those who are employed will need to check their pension plan to know for sure. If your pension is a ‘relief at source’ plan, and you are not involved in a salary sacrifice scheme, you’ll need to file to reclaim this extra tax relief from HMRC. Those who invest through a SIPP will also need to do this. You can claim this money online through HMRC, but it will be up to you to make and extra contribution to your pension after. The money will typically be reimbursed to you through future salary payments via a change to your tax code, so you will have to decide how much of that goes towards your pension in the future.