What does a pension pot worth £37,000, £150,000 and £500,000 give you?

If you’re wondering how much pension you need in the UK for a comfortable retirement, we look at what a pension pot worth £37,000, £150,000 and £500,000 will give you.

The amount you need in your pension pot for a comfortable retirement depends on your lifestyle aspirations and factors such as outstanding debt.

But there are ways to estimate how much would count as a good pension pot for you to fund the lifestyle you’d like and how far your private pension will stretch.

Below, we give some examples of the typical annual income generated by different-sized pension pots. These are intended as a rough guide and have been compiled with the help of Lisa Tipton, director of financial planning at New World Financial Group.

• Will the state pension be enough?
• How do you take an income from a private pension?
• £37,000 pension pot: what income does it give?
• £150,0000 pension pot: what income does it give?
• £500,000 pension pot: what regular income could it give?

Read more: ‘I retired at 52 with a tax-free income of £18,500 a year’

Will the state pension be enough?

The full UK state pension is currently worth £11,502 a year, but a single pensioner needs an annual retirement income of £14,400 – at least – in order to fund a basic lifestyle, according to the Pensions and Lifetime Savings Association (PLSA).

Assuming you qualify for the full government amount – £221.20 a week at present, or £11,502 a year – this means you need to find at least an extra £2,898 a year from your personal savings to fund retirement.

On top of this, you won’t gain access to your state pension until you reach the age of 66 (set to rise to 67 between 2026 and 2028).

As a result, most people do save into a private or workplace pension, from which you can usually start releasing cash at the age of 55 (rising to 57 by 2028). We take a look at these below.

See our guide on how to choose a private pension to help find the right one for you.

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How do you take an income from a private pension?

Before thinking about how much income you will get from your private and workplace pension pots, first you need to know about the different ways of taking money out of your pension.

You can take 25% of your total retirement savings as a tax-free lump sum.

1. Pension drawdown

Through drawdown, you can withdraw up to 25% of your savings tax-free directly from your pension, leaving the remainder invested in the same pot. The remaining 75% will be subject to income tax.

The long-established rule is to avoid taking out more than 4% a year, so that your funds last as long as you need them.

Read more: Best pension drawdown

2. Annuity

Money in your pension can be exchanged for an annuity – a financial product which pays you a fixed income for the rest of your life.

3. A combination of the two

You could release some of the money as cash, perhaps up to that 25% tax-free limit and buy an annuity with some or all of the remaining funds.

This could work if you are at the stage where you would prefer a guaranteed income for life rather than risking your money by leaving it invested in the stock markets. 

4. Cash, otherwise known as crystallising

You could withdraw the whole lot as cash, choosing where you spend or save it. You take the first 25% of the amount in your pension as a tax-free lump sum. The remaining 75% of your pot can be drawn directly and will be taxed accordingly. 

Read more: Best ready-made personal pensions

What does a £37,000 pension pot give?

The average pension pot is approximately £37,000, according to the latest figures from the Office for National Statistics (ONS) and PensionBee.

So what regular income could £37,000 give you?

Pension drawdown

If you took the 25% tax-free cash as a lump sum, you would have £9,250 to spend or save or invest elsewhere. You would be left with £27,750.

Your estimated annual income would then be £1,110 a year or £92.50 a month before tax, assuming you retired at age 66 (when the state pension age kicks in) and you chose to withdraw 4% a year. 

Added to the full state pension of £11,502 a year, it means your total annual income would be £12,612. Broken down over the year, it would be £1,051 a month. As this now busts the personal allowance of £12,570, this would incur a tax demand of £8.40.

If you chose not to take the 25% lump sum, your annual income from your private pension would be £1,480. That’s £123 a month, based on an annual 4% withdrawal.

This would take your total annual income to £12,982, or £1,081 a month, including the state pension.

Annuity

There are many factors that affect an annuity quote. Using the annuity calculator from Money Helper, and with that same £37,000 pension pot, you could get a monthly income of about £102, or an annual income of £1,227, with an annuity.

This is after taking the 25% tax-free lump sum, and assumes you start the annuity at age 66, are single and want an inflation-linked policy whose value increases each year line with the retail price index (RPI).

In a nutshell:

• Drawdown monthly income after 25% tax-free withdrawal: £92.50
• Annuity monthly income after 25% tax-free withdrawal: £102
• Crystallised lump sum: £37,000

*Assuming you withdraw 4% a year and retire at 66.

Pension pot size	Monthly income if taking tax-free 25% lump sum upfront	Monthly income including 25% tax-free allowance	Monthly income from annuity
£37,000	£92.50	£123	£102

Read more: How much should I pay into my pension?

What income could £150,000 pension pot give?

If you had £150,000 in the pot, let’s take a look at how much you’d get at retirement.

Pension drawdown

If taking the 25% tax-free cash as a lump sum, you would then be left with a pension pot worth £112,500.

Your estimated annual income would therefore be £4,500 a year or £375 a month before tax, assuming you retired at age 66 and withdrew 4% a year. 

Added to the full state pension of £11,502 a year, it means your total annual income would be £16,002, or £1,333.50 a month. 

However, as your income would be above the personal allowance of £12,570, you would be subject to basic-rate income tax of 20% on the difference: £3,432. After that tax deduction, the income you would expect to receive is £15,315 (£1,276 a month).

If you chose not to take the 25% tax-free lump sum, your total annual income from your private pension would be £6,000, or £500 a month. 

This would take your total annual income to £17,502 (£1,458.50 a month) including the state pension. 

As some of your payment would be tax-free, your annual net income would be £16,515, or £1,376 a month.

Annuity

With a £150,000 pot, you could get a monthly income of about £428 or an annual income of £5,146 with an annuity, the online annuity calculator from Money Helper suggests. 

This is after taking the 25% tax-free lump sum, and assumes you start at age 66, are single, in good health and want the value to increase with RPI each year.

In a nutshell:

• Drawdown monthly income after 25% tax-free withdrawal: £375
• Annuity monthly income after 25% tax-free withdrawal: £428
• Crystallised lump sum: £150,000

*Assuming you withdraw 4% a year and retire at 66.

Pension pot size	Monthly income if taking tax-free 25% lump sum upfront	Monthly income including 25% tax-free allowance	Monthly income from annuity
£150,000	£375	£500	£446

Read more: “I’m almost 40 – is it too late to build a decent pension?”

What regular income could a £500,000 pension pot give? 

Half a million pounds feels like a lot to have invested, but how far will it actually get you?

Pension drawdown

If you took the 25% tax-free cash as a lump sum, you would have £125,000 to spend or save or invest elsewhere and be left with £375,000.

Your estimated annual income would therefore be £15,000 a year or £1,250 a month before tax. That’s providing you retire at age 66 and withdraw 4% a year. 

Added to the full state pension of £11,502 a year, it means your total annual income would be £26,502, or £2,208.50 a month. Again, as your earnings are above the personal allowance, you would be subject to basic-rate income tax. The net income you could expect is £22,647 a year (£1,887 a month).

If you choose not to take the 25% tax-free lump sum, your total annual income from your private pension would be £20,000, or £1,667 a month.

Adding in the state pension, this would take your total annual income to £31,502 (or £2,625 a month) and your net income to £26,665 (or £2,222).

Annuity

You could get a monthly income of about £1,455 or an annual income of £17,470 with an annuity, according to the online annuity calculator from Money Helper. 

This is after taking the 25% tax-free lump sum, and assumes you start at age 66, are single and want the value to increase with RPI each year.

In a nutshell:

• Drawdown monthly income after 25% tax-free withdrawal: £1,250
• Annuity monthly income after 25% tax-free withdrawal: £1,455
• Crystallised lump sum: £500,000

*Assuming you withdraw 4% a year and retire at 66.

Pension pot size	Monthly income if taking tax-free 25% lump sum upfront	Monthly income including 25% tax-free allowance	Monthly income from annuity
£500,000	£1,250	£1,667	£1,445

Read more: “I took a mid-life MOT to make sure my £450,000 pension savings were on track”