This article was last updated on 01/10/2024
Saving for retirement is a long-term goal, so plenty can happen during your lifetime that might cause you to fall behind on your pension savings.
If you find yourself with a pension shortfall - when the amount you’re currently saving isn’t enough to reach your retirement goal - you’ll want to get back on track as soon as possible.
Do you have a pension income shortfall?
First, you’ll want to check if you’re on track to reach your retirement goal. The easiest way to do this is to use our pension calculator.
You’ll need to provide:
- retirement income goal;
- current age;
- expected retirement age;
- current pension pot value; and
- current level of contributions.
If the projected income figure is less than your goal, then you’ve got a pension income shortfall.
How much do you need to save to catch up?
If you’ve used our pension calculator, learning how much you need to increase your contributions to meet your retirement income goal is simple.
Simply adjust the ‘personal monthly contribution’ slider until the projected figure meets your goal figure.
Here are some possible scenarios.
| Your age | 20 | 30 | 40 | 50 |
|---|---|---|---|---|
| Retirement goal | £17,000/yr | £17,000/yr | £17,000/yr | £17,000/yr |
| Current pension pot | £2,000 | £20,000 | £40,000 | £80,000 |
| Current contributions | £150/mo | £200/mo | £250/mo | £300/mo |
| Shortfall | £2,867/yr | £3,598/yr | £5,349/yr | £6,623/yr |
| Needed contributions | £210/mo | £300/mo | £490/mo | £850/mo |
The above scenarios assume a retirement age of 65 and an employer contribution of £150 per month. We haven’t included additional state pension income.
Bear in mind that you’re likely to earn a higher salary as you get older, so you should be able to increase your contributions over time. Your employer should also be able to pay in more as your salary increases.
Options to boost pension savings
If you need to make up for a shortfall, there are plenty of ways to go about it.
Join a workplace pension
It’s now a legal requirement for employers in the UK to offer a workplace pension to their employees. New employees should be auto-enrolled into this scheme, but it’s possible for the employee to opt out of it. You can’t join your company pension until you’re 22 and earn at least £10,000 per year. If you’re 21 or under and earn £6,240 or more in a tax year (2024/25), you have the right to opt into your workplace pension scheme. If you choose to opt in, you’ll be entitled to the minimum level of employer contributions. If you earn less than £6,240 you can still ask your employer to give you access to a pension to save into. They have to do this, they just don’t have to make any employer contributions
If you’re working but haven’t joined your employer’s workplace pension scheme, doing so will help you get back on track. Not only will you receive tax relief on contributions from the government, but your employer will also contribute at least 3% of your qualifying earnings.
If you’re working but haven’t joined your employer’s workplace pension scheme, doing so will help you get back on track. Not only will you receive tax relief on contributions from the government, but your employer will also contribute at least 3% of your salary.
Start a personal pension
If you’re self-employed or unable to join a workplace pension for another reason, you can always start your own self employed pension.
You can choose between a defined contribution pension or a Self Invested Personal Pension (SIPP). Even though you won’t receive employer contributions (unless you own a Limited business), you’ll still receive tax relief from the government.
If you’re unsure which is right for you, you might want to speak with a financial adviser first.
Combine your old pensions into one
If you’ve changed employers, you’ll likely have multiple pension pots dotted around the place. It’s easy to lose track of these pensions or forget about them altogether. For example, you might move home and forget to tell your pension provider. This isn’t uncommon. It’s estimated more than 4.8 million pension pots are missing in the UK with this figure expected to grow by 130% by 2050.
Keeping track of multiple pensions can be time consuming, if you even know where to look. And given that different providers charge a different range of fees, you might find yourself paying more than you need.
Combining your pensions into one easy-to-manage plan that has a single fee structure could save you money in the short-term, as well as reducing the amount of ‘fee erosion’ over the long term.
Before moving your old pensions, check if there are any exit fees or other penalties that could make it worth keeping them where they are.
Delay retirement
The longer you pay into your pension, the more chance it has to grow. And thanks to the miracle of compounding returns, the amount that it grows increases over time.
So delaying retirement by even a couple of years can significantly increase your retirement income. Here’s an example.
Let’s take a 55-year old with a pension pot of £150,000, and see how their retirement age could affect their income.
| Retirement age | Annual retirement income |
|---|---|
| 65 | £8,824 |
| 66 | £9,307 |
| 67 | £9,828 |
| 68 | £10,390 |
| 69 | £10,999 |
| 70 | £11,661 |
And this assumes they never pay into their pension again after the age of 55, which is unlikely.
Delaying retirement can have lots of benefits. For more, read 6 reasons why you should delay taking your pension.
Plan for a more modest retirement
Increasing pension contributions isn’t always possible, and it can become costly if you leave it until later in life (as we’ve seen). Depending on your retirement goal, you might find that you can actually live off less without seeing much impact on your standard of living.
A recent Which? survey suggested that couples enjoying a moderate retirement living standard spend £43,100 a year. That’s £21,550 each. So, depending on how much you planned on saving for each year of your retirement you may decide you don’t need to increase your contributions as much as you thought or at all.
However, if you can increase your contributions - even just a little - you might find it worth doing. Because no one knows what the future brings, and saving more now could pay off just when you need it.
Consider other ways of earning retirement income
While it’s sensible to have a good pension in place, you don’t necessarily have to rely on it exclusively to earn your retirement income.
Other ways of earning income in retirement include:
- Cashing out of other investments
- Selling collectable items
- Renting out property
- Downsizing your home
- Selling a second home
- Releasing equity in your home (comes with risks)
- Taking on part-time work
Planning ahead for retirement
Retirement is one of those things that seem a long way away until you get there, by which time your options to address any shortfalls will be limited.
If you do find yourself with a gap in your pension savings, don’t worry. The above tips should help you get back on track, even if you need to adjust your retirement expectations a little.
When it comes to pensions, the best time to act is when you’re young. The next best time is today.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
