# Retirement ‘cliff edge’ warning as figures indicate income levels needed

By Charlene Young — 2026-06-02

Charlene Young, senior pensions and savings expert at AJ Bell, said: “We’ll need even more in our pensions at retirement to combat rises in the cost of living, according to the latest Retirement Living Standards figures from Pensions UK.

“Pension savings are ultimately there to pay us an income when the time comes to retire, but the shift from pension promises to pots can sometimes leave people scratching their head at how much they need to put away.

“The Pensions UK figures can help people crunching the numbers to work out what they’ll need to get by, depending on how they want their retirement to look.

“But sticky inflation baked into the record price hikes we saw in the early 2020s means the pension pot values required to generate those incomes have also soared, and some people are likely to find themselves behind.

“The recent Pensions Commission report has identified that 15 million people are undersaving for retirement and being told you need £500,000 saved for even a moderate standard of living in retirement can be overwhelming.

“While automatic enrolment has been successful in getting more people saving into a pension in the first place, anyone getting just minimum contributions is particularly at risk of their savings not meeting their retirement expectations.

“The same goes for people who intend to rely on little more than the state pension alone, including many self-employed people.

“Without taking control of their pension pots, increasing contributions and making the most of the tax perks on offer, those currently saving for retirement will be forced to choose between working far longer or living on a pittance in their later years.

“The state pension should cover the cost of the minimum standard of living for a two-person household at state pension age, which is currently 67.

“But the ‘single tax’ still rings true in retirement, meaning those wanting to get by at the minimum level with no car or foreign holidays in a one-person household will still need to have some pension savings of their own.

“It’s no surprise that the earlier you start pension saving, the less you need start to put away, thanks to the power of time and compounding.

“We’ve pulled together what contributions are needed to achieve the pension pots quoted by Pensions UK, based on the average existing pension pot at each of those ages, according to the ONS.

“The costs are significantly lower for a two-person household (at an individual level) able to combine pension pots, but the figures for a one-person household might leave those expecting a decent standard of living in retirement with a shortfall unless they take action.

“A 30-year-old earning £37,000 could build a pension pot of over £437,000 by age 67, putting themselves in the moderate lifestyle bracket by contributing eight per cent of their salary assuming their employer also adds three per cent.

“This £247 per month starting figure assumes they already have £19,000 in pension savings, achieve five per cent annual investment growth before charges of 0.6 per cent, and receive three per cent pay rises each year. The figures are also adjusted for two per cent inflation.

“Someone aged 40 with an existing pot of £39,500, would need to begin paying in 11 per cent of a £48,000 salary, equivalent to a starting amount of £440 per month to get to the same pot value.

“This also assumes the same five per cent growth rate for investments before charges, a three per cent employer contribution, three per cent earnings growth and two per cent inflation.

“Leaving the catching up until age 50 and starting from an £80,000 existing pot means a higher mountain to climb and higher pension contributions.

“To get to a moderate living standard at state pension age would require personal contributions of 18 per cent based on a £58,000 salary and the same growth and inflation assumptions, alongside a three per cent employer contribution to complement the £870 monthly personal contribution.

“These personal contribution figures rise to a whopping 16 per cent (£493 per month), 22 per cent (£880 per month) and 35 per cent (£1,692 per month) of the respective salaries for our three age groups to get over £700,000 and into the pot range required for a comfortable living standard.

“Clearly the contribution from a worker could be lower if an employer paid in more than just three per cent, but this also highlights that stark reality for self-employed people, who will not benefit from an employer top up.”

“What can you do to boost your own pension savings? The key to reaching your retirement target relies on you taking control of your pension savings and knowing what action you need to take as early as possible.

“Although a workplace pension comes with minimum contributions, it’s worth checking with your employer if they will match any extra money that you pay in, up to a certain level.

“Many employers do offer some kind of matching, and you could be missing out on extra ‘free money’ as anything on offer won’t be diverted to you as extra pay instead.

“With over £31 billion in the UK thought to be in lost pensions (source: Pensions Policy Institute), and people in the UK having multiple different jobs with different employers throughout their careers, it’s vital to check you’ve not lost track of any old workplace pots.

“Many providers, including AJ Bell, offer a free pension finding service which allows you to combine your pots in one place, which can result in easier administration as well as lower costs, meaning your pension keeps more of your investment returns over the long term.

“If you work for yourself, you won’t be automatically entered into a workplace pension scheme, but you can still save for your retirement and lower the cost of saving thanks to pension tax relief.

“If you own a limited company, you could also consider paying part of your earnings directly into your pension as an employer contribution.

“This can have the added benefits of reducing your business’ liability for corporation tax and your personal liability for income tax, saving tax while boosting your retirement pot.”

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