More than two in five adults aged 40 to 75 in Great Britain say they have “no idea” how much income they’ll need in retirement, according to the Department for Work and Pensions’ 2024 Planning and Preparing for Later Life survey. That same report found that 77% of people with a defined contribution pension who haven’t yet accessed it do not have a clear plan for how they’ll turn their pot into a regular income. Without a plan, the gap between what you have and what you’ll need can quietly compound into a shortfall that lasts decades.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
The State Pension covers the floor, but for most people it won’t reach the moderate lifestyle they hope for. The PLSA’s Retirement Living Standards put a moderate retirement for a single person outside London at £31,300 a year in 2026/27. The full new State Pension currently pays £12,548. That leaves a gap of nearly £19,000 a year that private savings, a workplace pension, or a retirement on a budget need to cover. How you bridge that gap, and when you start, makes all the difference. Here’s what you actually need to know.
If you’re saving into a defined contribution pension — the most common type outside the public sector — your retirement income depends entirely on how much goes in, how it’s invested, and how you withdraw it later. Unlike a defined benefit (final salary) scheme, there’s no guaranteed payout. You carry the risk, and you make the choices.
What I tend to notice is that people who understand these two things — what their pot size actually means in annual income, and when they can access it — are far less likely to be caught out by a shortfall. The rest of this article walks through the numbers, the common traps, and the mechanics of making flexible retirement work.
What the gap between savings and spending actually looks like
The PLSA Retirement Living Standards give a clear benchmark. For a single person outside London in 2026/27, a minimum retirement costs about £14,400 a year, a moderate one £31,300, and a comfortable one £43,100. The full new State Pension covers £12,548 of that, leaving a shortfall that your private savings must fill.
The median private pension wealth for UK adults aged 55 to 64 is roughly £107,000. At a 4% drawdown rate, that pot produces about £4,280 a year. Add the State Pension and you’re at roughly £16,828 — just above the minimum standard, but well short of moderate. To reach the moderate level, you’d need that same 4% drawdown to produce about £18,752 a year from your private pot, which requires a pot of roughly £469,000.
Here’s how the figures stack up for a typical saver contributing from age 22 to 67 with 5% real growth, based on the Pension Bible projections:
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| Contribution Rate | Projected Pot at 67 | Annual Drawdown (4%) |
|---|---|---|
| 8% (auto-enrolment minimum) | ~£310,000 | ~£12,400 |
| 12% (target rate) | ~£465,000 | ~£18,600 |
Notice the difference: an extra 4% of salary each year produces about £155,000 more in your pot, which translates to roughly £6,200 more in annual income. That’s the gap between a minimum lifestyle and a moderate one for many people.
The compounding cost of delay is just as stark. If you start saving £200 a month at age 25 and continue to 67 at 5% real growth, you end up with roughly £340,000. Start the same monthly amount at 35, and you get about £185,000. That ten-year delay costs you roughly £155,000 in final pot value — more than £6,000 a year in lost retirement income. If you’re trying to bridge that gap, a financial advisor can help you model what contribution rate gets you back on track, but the maths is unforgiving: the later you start, the more you need to save each month.
Where the planning process breaks down
Not knowing what you’ll need
The 2024 PPLL survey found that 41% of adults aged 40 to 75 had no idea how much income they would need in retirement. Among those who did have a figure in mind, a third said they’d need a higher proportion of their current income than they expected to have. That’s a mismatch between aspiration and reality that starts years before retirement. Without a target number, there’s no way to know whether your current savings rate is enough or whether you’re heading for a shortfall.
Having no drawdown strategy
Among DC pension holders aged 40 to 75 who hadn’t yet accessed their pension, 77% had no clear plan for how they’d take money out. One in five didn’t even know they had to make a choice. That’s a problem because the default option — leaving the pot untouched — isn’t a strategy. The FCA’s Financial Lives 2024 survey found that over half of DC contributors had low or very low pension engagement, and 31% didn’t know their pot was invested at all. If you don’t choose a drawdown path, you risk leaving money in investments that may not suit your retirement timeline, or worse, cashing out entirely and losing tax advantages.
Ignoring the employer match
Auto-enrolment requires a minimum 3% employer contribution on qualifying earnings, but many employers offer more if you contribute more. Not taking the full match is effectively turning down free money. If your employer matches up to 6% and you only contribute the minimum 5%, you’re leaving an extra 3% of your salary on the table each year. Over a career, that missed match can cost tens of thousands in lost growth.
Missing the NI top-up window
Your State Pension entitlement depends on your National Insurance record. If you have gaps — from time out of work, career breaks, or low earnings — you can typically buy missing years to boost your pension. But the window to top up isn’t open forever. Currently, you can usually fill gaps going back up to six years, but the cost and availability change. A single missing qualifying year can reduce your State Pension by roughly £275 a year, and that shortfall lasts your entire retirement. A quick pre-retirement checklist should include a check of your NI record on GOV.UK before the window closes.
How flexible retirement actually works in practice
Flexible retirement — sometimes called “phased retirement” — means you don’t have to stop working entirely on a set date. You can reduce hours, switch to part-time work, or take on a different role while drawing some pension income. The 2024 PPLL survey found that 10% of adults aged 40 to 75 were already semi-retired, and the median age at which people expected to retire was 66, while the median ideal age was 60. That six-year gap suggests many people are working longer than they’d like, often because they haven’t built enough private savings to stop earlier.
Drawdown: the flexible option
Income drawdown lets you keep your pension pot invested while taking money out as and when you need it. You can take up to 25% of your pot tax-free as a lump sum (usually), and the rest is taxed as income when you withdraw it. The main advantage is flexibility — you can vary your withdrawals year to year, stop them if investments fall, and leave the remainder invested. The main risk is that you outlive your pot. The FCA’s Financial Lives survey found that only 43% of people who had decumulated a DC pension had considered how long they were likely to live, and just 26% had considered the effect of inflation. A 4% withdrawal rate is often cited as a sustainable starting point, but that’s not a guarantee—it’s a rule of thumb that depends on investment returns and how long you live.
Annuity: the guaranteed income option
An annuity converts your pension pot into a guaranteed income for life (or for a fixed term). The trade-off is that you lose access to the lump sum, and the income is fixed (or increases by a set amount each year). Annuity rates fluctuate with gilt yields and have been higher in recent years than they were a decade ago. The advantage is certainty — you can’t outlive it. The disadvantage is that if you die early, the remaining pot typically goes to the provider, not your heirs. Some annuities offer a value-protection or dependant’s pension, but those reduce the initial income.
What tends to make sense here is a blended approach — using part of your pot to buy an annuity that covers essential costs (housing, bills, food) and keeping the rest in drawdown for flexibility, travel, or unexpected expenses. That way you’ve got a guaranteed floor and a flexible top-up.
The emerging rules: Guided Retirement and what it means for you
The Pension Schemes Bill, expected to receive Royal Assent in mid-2026, introduces “Guided Retirement” — a requirement for pension schemes to offer default decumulation options designed to provide a sustainable income without complex decision-making by the saver. The government’s rationale is clear: the FCA’s 2024 survey found that 52% of DC contributors have low or very low pension engagement, and half of working-age adults have no retirement plan. Guided Retirement will mean that, unless you actively choose otherwise, your scheme will put you into a default pathway that aims to last your lifetime. For most people, that’s an improvement over making no choice at all. But if you want more control, you’ll need to opt out and make your own decisions — which means you need to understand the basics.
Changes to age gates and inheritance tax
From 6 April 2028, the Normal Minimum Pension Age rises from 55 to 57. That means you won’t be able to access most private pension savings before 57, even if your scheme rules previously allowed it at 55. If you’re planning to retire early, factor that in. State Pension age also rises to 67 between 2026 and 2028, phased month by month for those born between 6 April 1960 and 5 April 1961. And from April 2027, unspent pension pots will be included in your estate for Inheritance Tax purposes — a change that may affect how you sequence withdrawals if leaving money to heirs is a priority.
Frequently asked questions about flexible retirement
What happens if I take my pension early and then want to go back to work? ▾
How does the State Pension age change affect my retirement timing? ▾
Can I still contribute to a pension after I start drawing it? ▾
What happens to my pension if I die before 75? ▾
When will pension dashboards be available? ▾
How do I check if I’m eligible for Pension Credit? ▾
Flexible retirement is a numbers game — and the rules are shifting
The biggest change coming is Guided Retirement, which will nudge most savers into default income pathways designed to last a lifetime. That’s a safety net for people who don’t want to make complex decisions, but it also means you’ll need to actively opt out if you want more control over your withdrawals, investments, or inheritance planning. The 2028 rise in the Normal Minimum Pension Age, the 2027 change to Inheritance Tax on pensions, and the phased increase in State Pension age all mean that timing your retirement is more consequential than ever. If this was useful, you might also want to read The Ultimate UK Pre-Retirement Checklist.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
Sources and Further Reading
Retirement on a Budget in the UK — Practical strategies for managing a comfortable retirement when private savings are limited.
Cultivating a Positive Retirement Mindset — How your approach to money and planning affects retirement outcomes.
Pension Bible (2026). Retirement planning guide. 🔗
Department for Work and Pensions (2024). Planning and preparing for later life 2024. 🔗
GOV.UK (2026). Pension Schemes Act 2026: Guided Retirement guiding principles. 🔗
Fidelity UK (2026). Pensions shake-up: changes that could reshape your retirement. 🔗
