How Much Pension Do I Need? A Realistic Calculation

The Accounted Tax Team·4 March 2026·8 min read

"How much pension do I need?" is one of those questions that's easy to ask and surprisingly hard to answer. It depends on when you want to retire, what kind of lifestyle you're after, how long you expect to live, and a dozen other factors that are genuinely uncertain.

But that uncertainty is no excuse for not trying. A rough calculation — even one built on estimates — is infinitely better than no calculation at all. And for self-employed people, who don't have an employer quietly building a pension for them, doing this exercise is essential.

So let's work through a realistic pension calculation, step by step, using figures that make sense for the 2025/26 tax year.

Step 1: Decide What "Enough" Looks Like

Before you can figure out how much to save, you need to know how much you'll want to spend. The Pensions and Lifetime Savings Association (PLSA) publishes retirement living standards that provide a useful benchmark:

| Standard | Single person | Couple | |---|---|---| | Minimum | ~£14,400/year | ~£22,400/year | | Moderate | ~£31,300/year | ~£43,100/year | | Comfortable | ~£43,100/year | ~£59,000/year |

The minimum standard covers all your basic needs but leaves little room for luxuries. You'd be able to afford a week's holiday in the UK, basic food shopping, and modest social activities.

The moderate standard is where most people feel reasonably content. It allows for a two-week European holiday, eating out occasionally, and some money for hobbies and home maintenance.

The comfortable standard allows for regular holidays, a newer car, and a generally worry-free financial life.

For this exercise, let's aim for a moderate retirement income of £31,300 per year for a single person. That's a reasonable target — not lavish, but genuinely comfortable.

Step 2: Account for the State Pension

The full new State Pension for 2025/26 is £221.20 per week, which works out to approximately £11,502 per year.

To receive the full amount, you need 35 qualifying years of National Insurance contributions. If you have gaps in your record, you'll get less — we'll come to that later.

For now, let's assume you'll receive the full State Pension. That gives us:

Target income: £31,300 State Pension: £11,502 Shortfall to fund from private pension: £19,798 per year

So you need your private pension (SIPP, personal pension, or any workplace pensions from previous employment) to generate roughly £20,000 per year.

Step 3: How Long Will You Need It For?

This is where life expectancy comes in. The current State Pension age is 66, rising to 67 between 2026 and 2028, and potentially to 68 after that. Let's assume you retire at 67.

Average life expectancy in the UK is about 80 for men and 83 for women, but these are averages — plenty of people live into their 90s. For pension planning, it's wise to plan for longer than average. Let's assume you need income for 25 years (to age 92).

Annual shortfall: £19,798 Years of retirement: 25 Total needed (in today's money): £494,950

That's a big number. But before you panic, remember two things: your pension pot will continue to grow during retirement (if invested in drawdown), and inflation means the real value of future contributions will be lower. These factors partially offset each other.

Step 4: What Size Pot Do You Need?

Financial planners often use a "sustainable withdrawal rate" to estimate how much you can safely take from a pension pot each year without running out. A commonly cited figure is 4% (sometimes called the "4% rule"), though many UK advisers now suggest 3.5% to be more conservative, given lower expected returns.

Using a 4% withdrawal rate:

Annual income needed from pension: £19,798 Pot required: £19,798 ÷ 0.04 = £494,950

Using a more cautious 3.5% rate:

Pot required: £19,798 ÷ 0.035 = £565,657

Let's split the difference and say you need a pension pot of roughly £500,000 to £570,000 to fund a moderate retirement, on top of the State Pension.

Step 5: How Much Do You Need to Save Each Month?

This depends hugely on how old you are now and when you start. Here's where compound interest — Albert Einstein's alleged "eighth wonder of the world" — either works spectacularly for you or spectacularly against you.

Assuming a 5% annual investment return (after charges) and a target pot of £530,000:

| Your current age | Years to 67 | Monthly contribution needed | |---|---|---| | 25 | 42 | ~£310 | | 30 | 37 | ~£410 | | 35 | 32 | ~£550 | | 40 | 27 | ~£750 | | 45 | 22 | ~£1,050 | | 50 | 17 | ~£1,550 | | 55 | 12 | ~£2,500 |

These figures assume you're starting from zero. If you already have a pension pot, the required contributions will be lower.

The message is stark: the earlier you start, the less it costs. Someone starting at 25 needs to put away about £310 a month. Someone starting at 50 needs five times that amount for the same outcome. If you've been putting off your pension, there's a strong argument for starting right now.

Step 6: Don't Forget Tax Relief

Here's the good news. Those monthly figures don't account for pension tax relief, which effectively gives you free money.

If you're a basic-rate taxpayer and contribute £310 per month, you actually only need to pay £248 from your bank account. Your pension provider reclaims the other £62 from HMRC. If you're a higher-rate taxpayer, you can claim even more back through your Self Assessment tax return.

So the net cost to you is significantly less than the headline contribution figure. For a 40% taxpayer, that £310 monthly contribution effectively costs just £186 after all tax relief is claimed. Pensions really are extraordinarily tax-efficient.

Step 7: Adjust for Your Circumstances

The calculation above is deliberately simplified. In reality, you'll want to adjust for:

Existing pension pots

If you've got pensions from previous employment or contributions you've already made, these reduce the amount you need to save going forward. Check old pension statements or use the government's Pension Tracing Service to track down any lost pots.

State Pension shortfalls

If you have gaps in your National Insurance record, your State Pension will be less than £11,502. You can check your record on the government's website and may be able to make voluntary contributions to fill gaps. This is often excellent value — a few hundred pounds can buy you an extra £5+ per week for life.

Desired retirement age

If you want to retire earlier than 67, you'll need more money. Every extra year of retirement adds roughly £20,000 to the pot you need (at the moderate standard). If you're happy working until 70, the numbers become much more manageable.

Inflation

Inflation erodes the purchasing power of money. £31,300 today won't buy the same in 2050. However, if your pension is invested in growth assets, the returns should broadly keep pace with inflation over the long term.

Partner's income

If you have a partner who is also saving for retirement, your combined household income in retirement will be higher. You may be able to reduce your individual target accordingly.

A Realistic Example

Let's bring this together with a concrete example.

Tom is a 35-year-old sole trader earning £42,000. He has no existing pension savings. He wants a moderate retirement at 67.

Target pot: £530,000
Monthly contribution needed: ~£550 (gross)
After basic-rate tax relief: ~£440 from his bank account
As a percentage of income: roughly 15%

That 15% figure aligns with what most financial planners recommend — save around 12-15% of your income for retirement. It's a meaningful chunk, but it's manageable for most people if they prioritise it.

Tom uses Accounted to track his business income and expenses, so he can see exactly how much he can afford each month. Some months he contributes more (after a good invoice month), some months less. The flexibility of a SIPP allows this — there's no requirement to contribute a fixed amount every month.

Over the next 32 years, assuming 5% annual returns, Tom's pot grows to approximately £530,000. Combined with his State Pension of around £11,500 a year, he can draw roughly £31,700 annually — right on target for a moderate retirement.

What If You're Behind?

If you're reading this at 45 or 50 and thinking "I've left it too late," don't despair. Here are some strategies:

Max out your annual allowance. You can contribute up to £60,000 per year (or 100% of earnings, whichever is lower).
Use carry forward. If you've had the allowance available in previous years but didn't use it, you can carry it forward for up to three years.
Reduce your target. A minimum retirement standard, supplemented by the State Pension, requires a much smaller pot — perhaps £75,000-£100,000.
Work a bit longer. Even two or three extra years of contributions and investment growth can make a significant difference.
Consider downsizing. If you own your home, releasing equity in retirement can supplement pension income.

The worst thing you can do is nothing. Even modest contributions made late are better than no contributions at all.

More on Pensions

Pensions

How Much Pension Do I Need? A Realistic Calculation

Step 1: Decide What "Enough" Looks Like

Step 2: Account for the State Pension

Step 3: How Long Will You Need It For?

Step 4: What Size Pot Do You Need?

Step 5: How Much Do You Need to Save Each Month?

Step 6: Don't Forget Tax Relief

Step 7: Adjust for Your Circumstances

Existing pension pots

State Pension shortfalls

Desired retirement age

Inflation

Partner's income

A Realistic Example

What If You're Behind?

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How to Check Your State Pension Forecast

Do Self-Employed People Get a State Pension?

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