For some savers, a £3 million pension may sound far beyond what they’ll ever need. But long-term trends suggest bigger pots could become more common in the future. The Department for Work and Pensions (DWP) recently found that around 43% of working-age people are undersaving, with younger workers most affected.
Rising prices also play a role. If inflation averages 2% a year (2025/26), money loses around half its buying power over 35 years. That means today’s ‘comfortable’ retirement income of £43,900 a year could be around £96,000 in 40 years’ time to offer a similar lifestyle.
How rising costs could affect future costs
When you adjust for these future prices, a 25-year-old saving today could need a pot of around £3 million to support a comfortable 25-30 year retirement. This long-term view matters most for people in their 20s and 30s, as small changes today can have a much bigger impact once future prices are taken into account.
At the same time, some people simply like the idea of having more choice, more financial resilience, and the flexibility to stop working earlier if life allows. Aiming for a bigger pot can support that.
A £3 million pension could offer:
- more room to adapt as living costs rise over the decades;
- the potential to retire earlier than the State Pension age (currently 66, rising to 67 from 2028); and
- financial stability if your needs change later in life.
Whether this goal feels achievable will depend on things like when you start saving, how your salary changes, and the pension contributions your employers offer throughout your career.
What could a £3 million pension pot provide?
Based on a commonly referenced withdrawal guideline - where some people draw around 4% of their pot each year - a £3 million pension could provide roughly £120,000 annually. When combined with the full new State Pension (£11,973 for 2025/26), this could total around £131,973 each year.
In today’s terms, £120,000 sounds substantial. But it’s helpful to think about what this might mean in the future. If a 25-year-old retires in around 40 years, £120,000 could have similar buying power to about £55,000 today (based on 2% inflation). So what feels like a high income now may simply support the kind of comfortable lifestyle today’s retirees achieve with much less.
A £3 million pension could support:
- regular travel;
- spending on wellbeing or healthcare services;
- helping adult children or grandchildren;
- charitable giving; and
- day-to-day spending with more financial flexibility.
However, your actual retirement income will vary depending on investment performance, how much you withdraw and when, and tax. Tax treatment depends on your individual circumstances and may be subject to change in future.
Tax considerations
You can usually take up to 25% of your pension as a tax-free lump sum (from the age of 55, rising to 57 from 2028), but this is capped by the lump sum allowance (LSA) of £268,275 (2025/26). For a £3 million pot, this means the maximum tax-free amount would be £268,275, not £750,000.
Above this, pension withdrawals are subject to Income Tax after the £12,570 Personal Allowance (2025/26).
At higher levels of wealth, understanding how tax works can make a meaningful difference, so many people choose to speak with a regulated Independent Financial Adviser (IFA) about their options.
What it could take to reach a £3 million pension
Building a pot of this size is usually linked to:
- higher and more stable earnings across your career;
- access to generous employer pension schemes;
- starting contributions earlier in life; and
- increasing contributions as your income grows.
This combination may be more achievable than it first appears for those working in well-paid sectors, particularly when employer matching and long-term investment growth are involved.
If you’re part of Gen Z - born between 1997 and 2012, currently aged between 13 and 28 - you have decades ahead to build your pension, and starting early makes a significant difference.
Strategies for reaching £3 million
Building a pension pot of this size takes time and consistent effort. Here are some approaches that could help:
- Start early - the earlier you begin contributing, the more you benefit from compound growth, which is where your returns generate further returns.
- Increase contributions with pay rises - a small increase each time your salary grows can add up over time and may feel easier than making a large change all at once.
- Use bonuses and windfalls - some people choose to pay part of a bonus or inheritance into their pension, as tax relief can make it a tax-efficient option.
- Review employer benefits - as your career progresses, it’s worth understanding any pension enhancements your employer offers.
- Think long-term - for younger savers, a £3 million target isn’t about luxury. It’s about keeping your spending power over time and planning for life in the 2060s and beyond.
- Combine old pensions - consolidating multiple pots can make it easier to track your progress and may reduce fees.
Not all of these will suit everyone, but using just a few consistently over your career could significantly boost your pension savings.
Is this goal right for you?
A £3 million pension pot won’t be necessary or achievable for everyone. What matters most is building a pot that aligns with your own retirement goals.
For someone retiring in the next 10-15 years, a £3 million pot would offer significant financial freedom. For someone in their 20s or early 30s, it may simply reflect rising costs over the decades ahead. Your age and expected retirement date shape how ambitious this target really is.
You might consider:
- the lifestyle you hope to have in retirement;
- when you’d like to stop working;
- whether you’ll have other sources of income; and
- your family circumstances.
Even if your target is £1 million or £2 million, the same principles apply: start early if you can, contribute regularly, take advantage of tax relief and employer contributions, and increase what you pay in when it feels manageable.
You can use PensionBee’s Pension Calculator to explore how your pension could grow over time.
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.
