Average UK Pension Contribution

If you’re worried about retirement and want to know the average amount to contribute to your pension, this article is the perfect place to start.

Each month, over 170,000 people visit our website looking for guidance on financial matters, including pensions, so you’re not alone. We have the expertise to help you make sense of the average UK pension contribution, currently standing at ¬£2,700 per year.

In this article, we’ll explain:

•  The average UK pension contribution
•  When you can start to receive your pension
•  How gender might affect pension contributions
•  How pension contributions differ between age groups
•  How workplace contributions can boost your pension

Our team understands how daunting it can be to think about retirement. We’ve been there too, and we’re here to help you navigate through the complexities of pension contributions.

How much is the average UK pension contribution?

According to gov.uk, the average UK pension contribution is ¬£2,700 for a single person per year.  

£42,651 is the current average value of a pension pot for all people living in the United Kingdom, whether or not they are retired.

Given that pension experts advise that those who plan to retire at the age of 67 should have a minimum savings amount of ¬£237,000 in order to have a “comfortable” retirement, the current value of the average British pension is just 18% of this total.

In 2017/18, there were 10.4 million people in the UK who were making contributions to their personal pension.

About 19% of respondents to a survey by Finder.co.uk reported not having any type of private or employment pension.

This means that around one fifth of the population does not have any type of pension at all.

A further 18% of people have a pension through their employment but do not have a private pension.

In the meantime, working Britons have only £33,809 saved in their pension pots, which is a difference of £203,191 compared to the amount that is advised for a pleasant retirement.

What is the age that you can get your pension in the UK?

In November 2018, the state pension age was 65 for men and women. However, this is gradually increasing and now depends on when you were born.

It will reach 67 by 2028 and is going to be kept under review, which means that it could change again in the future, depending on different factors, such as changes in life expectancy.

Taking money out of your pension before you reach the required minimum age of 55 is referred to as “early pension release” or “pension unlocking” (57 from 2028).

A significant additional amount of tax will be applied if certain conditions are not met.

In 2018/19, the average state pension amount in the UK was £176 a week.

Taking your pension early is absolutely legal in the UK. However, you need to wary about the taxes. The first 25% of your pension is tax free; anything you take above this amount counts towards your annual income and will be taxed.

Do different age groups contribute differently to their pension?

When broken down by age group, the average amount of savings held by millennials is £17,175.

As could be anticipated, these sums continue to grow with each succeeding generation. Baby boomers have saved an average of £61,546 for their retirement, whereas members of Gen X have saved only £35,175.

Despite the fact that many members of this generation are now retired, the average amount of savings that they have is only £111,855.

It is hardly surprising that Millennials are in the lead, with 21% and 15% respectively, without having a pension. 

In 2019, more than three-quarters of those in employment in the UK were members of a workplace pension system.

However, the percentage is still quite high for members of generation X (19%).

In spite of the fact that many members of these generations are already in their retirement y‚Äã‚Äãears, 22% of baby boomers and 30% of members of the silent generation said that they did not have a workplace or private pension.

Because of this, they would be forced to depend only on their state pension.

Note: Millennials are considered to be those born between 1981 and 1996, Gen X between 1965-1980, Baby Boomers between 1946-1964 and the Silent Generation between 1928 and 1945. (Source: Pew Research)

The earliest age at which you can usually withdraw cash from your pension fund is 55.

How does gender affect pension contributions?

Men who have not yet retired have an average pension pot balance of £62,336 whereas women have an average pension pot balance of just £22,735, which is a difference of 64%.

It is interesting, however, to note that, in terms of percentages, more women have a workplace pension than men. The fact that men and women are paid differently is likely one of the contributing factors that led to the existence of this gap.

17% of people over the age of 55 in the UK do not have any private pension funds.

Despite the fact that the gender pay gap among all employees was expected to decrease from 17.4% in 2019 to 15.5% in 2020, this still means that women would accrue less in their pension pot even when even the minimum pension contribution of 8% is applied to earnings based on gender. 

In addition, the majority of those working part-time in the United Kingdom are female.

In December 2020, women held part-time jobs at a rate of 38%, while men held part-time jobs at a rate of 13%.

Workplace contributions

The number of people contributing to workplace pension plans has been steadily climbing since the introduction of automatic enrollment in those plans in 2012.

To be more specific, in 2019, 77% of employees in the United Kingdom were members of a workplace pension system.

In 2019, 89% of employees in the public sector compared to 73% of employees in the private sector were members of a workplace pension system, notwithstanding the fact that the gap is slowly closing. 

The percentage of an employee’s salary that must be contributed annually to a workplace pension system in the United Kingdom rose to 8% on April 6, 2019.

Employers must now contribute at least 3% to pension pots, with employees making up the remaining 5%.