How to build a £1 million pension pot

Becoming a pension millionaire might sound like a far-off dream, but with the right strategy and a bit of forward planning, it’s more achievable than you might think.

The amount you need to save to reach a million-pound pension pot depends on your age and existing pension pots – and in this article, we've calculated the total monthly contributions by starting age.

You can boost your pension pot to get closer to the £1m goal by:

• Carefully considering your investments
• Opening a Self-invested personal pension (SIPP) on the side
• Claiming back extra tax relief
• Tracking down old pensions
• Being mindful of career breaks

As the state pension age rises and life expectancy increases, relying solely on government support is becoming less viable. That’s why building your own substantial pension pot is more important than ever.

We’ll walk through exactly how much you need to save to hit the magic £1 million mark by the time you retire. Whether you’re just starting out in your 20s, catching up in your 40s, or somewhere in between, we’ll break down the numbers, highlight the power of employer contributions and tax relief, and explore smart ways to boost your pension without dramatically changing your lifestyle. 

How much do you need to save to be a pension millionaire?

The age you will get the state pension is rising and will be 68 for anyone born after April 5, 1978. On that basis, let’s assume you’ll retire at the age of 68 and have until then to become a pension millionaire. 

If you start saving early

People who start saving young get a head start. They have longer to save and to benefit from the compounding of investment returns, meaning they don’t have to save as much each month to get to a pension pot of £1m. Conversely, if you don’t start saving into a pension until you’re 50 years old, you’ll find it very hard to reach that goal.

Let’s take someone who started pension saving at the age of 25. They would need to save £555 a month in order to reach millionaire status by the age of 68. This assumes 5% investment growth each year, after fund and platform charges. It also assumes that their contribution stays the same throughout their life. In reality, as your salary increases over time (hopefully), you’d likely increase your contributions. But as these pay rises are unpredictable, we’ve kept it at a flat amount.

This is also the total figure that would need to go into the pension, so someone who is employed in a job would get both tax relief and employer contributions, reducing the cost to them. That’s helpful, because if you were only contributing 5% of your salary into a pension and you needed to meet that entire £555 a month cost to yourself, you’d need to be earning £133,200 a year – which I think we can all agree is unrealistic for most 25-year-olds.

However, if you’re benefiting from both employer matching and tax relief on the contributions, you’d only need to pay in £222 a month yourself, with £55.50 added from basic-rate tax relief and £277.50 in employer matching, all totaling £555.

If you start saving later in life

If you don’t start saving for your retirement until later in life, you’ll have to pay in more as you have a shorter period until you come to retire.

If you start at the age of 40, with no existing pension savings, you’d need to pay in £1,360 a month to reach the pension millionaire goal. This requires you to have either a high salary, be paying in a significant proportion of your pay each month or have a very generous employer contribution – or a combination of all three. But again, the power of tax relief and employer matching could reduce that cost for the individual, which would be matched by your employer and then have tax relief added on top. 

Ways to boost your pension pot towards a pension million

There are plenty of tricks you can use to increase your pension contributions or boost your overall pot towards a £1 million pension.

1. Get your investments right

To maximise your pension pot value, you should invest in things that will help to boost your returns over time. If you stick to cash, you’re very unlikely to hit that 5% a year returns target that we’ve based the £1m pension pot calculations on. Instead with cash, you’ll get a lower return, which means you’ll either need to contribute more or you’ll miss your target. 

By picking higher-risk investments you could generate a higher return, which will help you hit your goal on time (or even sooner). As you typically have a very long time horizon when it comes to pension investing, you could take more risk as you have more time to ride out the ups and downs of markets. If you’re not sure how to build an investment pot, check out our video on building a portfolio, or you can look at our investment ideas to help you get started.

However, as you approach retirement, it may be wise to reduce the level of risk in your pension fund — especially if you expect to start drawing from it soon. Shifting more of your investments into safer assets, such as bonds and cash, can help protect your savings from sudden market drops.

Learn more about investing risk

2. Open a SIPP on the side

Lots of people will automatically be put into a pension at work, thanks to auto-enrolment. This means they will be paying in some of their salary and their employer will also pay in a chunk. Some employers will only pay in the legal minimum required, but others will match your contributions to a higher level. For most people it makes sense to exhaust any employer matching before you think about opening a Self-invested personal pension (SIPP) on the side. This is free money that you won’t get otherwise.

But if you’re already getting the maximum contribution from your employer, you could open a SIPP to add to your pension savings on the side. You could set up a monthly payment into the SIPP or choose to make ad-hoc payments into it – if you get a bonus or other lump sums of money. These extra contributions will help to boost your pension pot and get you closer to the million-pound pension goal.

Open a SIPP

There are overall limits about how much you can pay into your pension each tax year and still get tax relief. Broadly, these are up to 100% of your UK earnings for your own contributions, and £60,000 in total for both your and your employer’s contributions, including any automatic tax relief paid into your pension from HMRC.

3. Claim back extra tax relief

One easy way to boost your pension savings is to make sure you’re claiming all the tax relief you’re entitled to from HMRC. When you pay into a pension like a SIPP or Ready made pension, you’ll get basic-rate tax relief on the contributions, but if you’re a higher or additional rate taxpayer you can claim back extra tax relief. The only snag is that you’ll need to do this yourself via a tax return if you already file one, or go directly to HMRC if you don’t usually file – but it could be an easy way to claim back free money.

For example, if you pay £100 into a SIPP, the pension provider will automatically reclaim basic-rate pension tax relief for you – equaling £25. But if you’re a 40% taxpayer you could then reclaim an extra £25 in tax relief. This won’t be paid into your pension but will instead come off your tax bill – so you’d need to pay that money into your pension yourself. But this is a great way to boost your pension pot over time – and for free.

Read more about how the pension tax relief works

4. Track down old pension pots

One easy (and free) way to boost your pension to get it closer to the million-pound mark is to track down old, lost pension pots. If you are missing some of your pension pots, you can use the government’s Pension Tracing Service to find lost investments, or you can use tools like the AJ Bell pension finder, which allows you to find pensions and combine them into a Ready-made pension account or a SIPP.

By putting all your pensions in one place you could reduce the charges on your pot and you’ll have a better idea of how much money you have actually saved. Plus, you only need to remember one login.

Check out more benefits of combining pensions

5. Watch out for career breaks

You might be sticking to the monthly contributions we laid out at the start and be on track to hit the £1m pension goal, but any career breaks, gap years or part-time working can put a big dent in those plans.

Lots of people might take career breaks to have children, re-train, care for family, go travelling or any other reason. Equally, people might opt to reduce their hours, so they work four or three days a week. Everyone will consider the impact this has on their take-home pay, but lots of people forget about the effect on their pension. 

If you stop working for a year and are making no pension contributions, and getting no contributions from your employer, that can knock your pension off the £1m target. Equally, if you cut down your hours to working four days a week – that's a 20% pay cut but also a cut to the amount you’re paying in to your pension.

You have a few options: take the hit and work out a plan to pay more into your pension later, prepare for the career break by making extra pension payments ahead of your time off, or make pension contributions while you’re off to maintain your levels. Whatever choice you pick, having a plan helps.