Most people contribute to a pension because they know they should, without a clear picture of what they are saving towards. That is understandable — retirement can feel abstract when it is decades away — but it creates a problem. Without a target, it is very difficult to know whether you are on track or how to adjust if you are not.
Effective retirement planning starts by answering a more personal question: what does retirement actually look like for you?
Define your retirement goals first
Before making any calculations, it helps to think concretely about how you want to live in retirement. Are you planning to travel extensively? Move closer to family? Pursue hobbies that require time rather than money? Or maintain broadly the same lifestyle you have now with fewer working commitments?
Your answers shape what your retirement income actually needs to cover. Everyday essentials, healthcare, leisure, gifts to family and one-off expenditures all need to be factored in. A rough model of your projected monthly spending in retirement gives you a much more useful target than a rule of thumb.
As a guideline, most people find they need between 65 and 80 per cent of their pre-retirement income to maintain a comparable standard of living once they stop working. The range is wide because the right figure genuinely depends on your circumstances — whether your mortgage will be paid off, whether you plan to travel, whether you expect to have significant care costs.
Assess where you stand today
Once you have a target income in mind, the next step is an honest assessment of your current position. How much is in your pension pots, and what are they projected to deliver at your intended retirement age? What is your State Pension forecast? Do you have ISAs, investments or other assets that will contribute to your retirement income?
Understanding the full picture allows you to calculate the gap — if there is one — between what you are on track to have and what you actually need. That gap, not an abstract contribution percentage, is the most useful number to work with.
Use employer matching fully
If you have a workplace pension with employer matching, contributing at least enough to receive the full match is one of the most straightforward financial decisions available. Your employer is effectively offering to increase the value of your contributions at no extra cost to you. Not taking full advantage of that is leaving money on the table.
Many people set their contributions at the default level when they join a scheme and never review them. If your circumstances have changed or your target income has become clearer, it is worth checking whether your contribution rate still makes sense.
Small increases compound significantly over time
It is easy to underestimate the long-term effect of modest contribution increases. An additional £50 a month invested consistently over 25 to 30 years, earning a reasonable return, can accumulate to a meaningful sum by the time you retire. The precise amount depends on returns and the timing, but the principle is reliable: small, consistent increases made early have an outsized impact over the long run.
If a significant contribution increase feels out of reach, a smaller step now — with a commitment to review again in a year — is considerably better than waiting for a more comfortable moment that may not arrive.
Review regularly and adjust as life changes
A retirement plan that was right for you five years ago may not be right today. Income changes, family circumstances shift, aspirations evolve. The value of reviewing your position regularly — and adjusting contributions, risk levels or target retirement age accordingly — is that you maintain control rather than discovering a shortfall too late to address it.
We review retirement plans as a standard part of our ongoing work with clients across Worcestershire and Warwickshire, but we are equally happy to work with people who simply want to understand where they stand and what they might do differently. If that sounds useful, we would be glad to help.
A pension is a long-term investment. The fund value may fluctuate and can go down as well as up. Tax treatment depends on individual circumstances and may be subject to change. This article is for information only and does not constitute personal financial advice.