How to build a £1m pension pot

When your aim is to build significant savings for later in life, it makes sense to have a goal in mind.

Even if you set your sights at a level that seems out of reach the exercise is worthwhile because, wherever you eventually end up, you’re likely to have made significant strides towards your financial goals in the process of trying to meet it. 

For lots of people, having £1m saved in a pension by the time they retire is that target. 

Reaching that sort of level is only going to be possible for the lucky few, those with high earnings and lots of spare cash to set aside over many years. A fair wind of investment growth is probably necessary too. 

Yet understanding what it takes to achieve it can be useful to know so that you can put your own level of savings into perspective. Here’s how to build £1m inside a pension - plus what that will get you when it comes time to retire.

Starting early - or as early as you can

Saving for retirement is the job not just of years, but decades. By making contributions to retirement savings many decades before you’ll need them you will be giving your money the chance to grow with investment returns. Nothing is certain when you invest - values can go down as well as up - but history suggests that a portfolio balanced between the stock market and bonds can grow over the long term. 

The historical annualised return from such a portfolio has been between 7%-8%. Such growth over many years can make a significant contribution to your pot overall - but you need to give your retirement savings the time to get there.

How much do you need to save?

This depends on how long you have until retirement. If you have made the sensible choice to begin pension saving early in your career you might have as long as 40 years or more for your contributions to build. 

Imagine a 25-year-old contributing money every month to a pension. If their savings achieved an annualised return of 5% (after all fees) over 40 years, it would require they contribute £660 every month in order for their pot to grow to £1,007,173 by the time they reach 65.

But that’s if they keep their contributions constant over all those years. If they were paying in a percentage of their salary into a pension rather than a flat amount their contributions would grow in line with their earnings, which can be expected to rise as they progress in their career.

On this basis, they could actually start contributing much less. If their wages grew at a rate of 2.5% a year over forty years, assuming again 5% of investment growth, they could actually begin their contributions at £460 a month and reach a figure of £1,008,953 by 65. In the year before their retirement they would be contributing £1,205 each month.

Those who have delayed their saving face a tougher task because their money has less time to grow. Had they delayed pension saving until age 35 their monthly contributions - based on the same assumptions of wage and investment growth - would need to start at £900 to reach a pot of £1,001,181. That 10 year delay means they need to contribute almost twice as much at the outset.

Tax relief will lighten the load

Even if you give yourself 40 years to save, those contributions will be tough to achieve and many will simply not be paid enough to get there. However, the actual cost to you of making pension contributions is reduced thanks to tax relief.

Any contributions you make are boosted by the government. For every £80 you invest in a pension, HMRC will add £20 and you can claim back even more if you pay higher rates of tax via your self-assessment form if your earnings mean you pay higher-rate (40%) or additional-rate (45%) tax.

It means that our 25-year-old making £460 contributions would actually only see their take-home pay reduce by £368 a month, if they were a basic rate taxpayer. If they pay higher-rate tax the effective cost would be just £276 once they have claimed all tax relief.

How much will a £1m pension pot get you in retirement?

Even if you’ve managed to save £1m inside pensions, how much does that translate to in retirement? There are a number of different ways to access and use your pension money. You can read about them all here.

Broadly, those looking to create a recurring income from their pot have a couple of options. They can give over their savings to buy an annuity, which pays a guaranteed income for life, or they can leave their money invested and then make withdrawals from the pot, either through drawdown or via lumps sums. You can also use a combination of these options.

When buying an annuity, it is usual to first take tax-free cash from your pension - this is known as the Pension Commencement Lump Sum. Under current rules, 25% of money held in pensions is available tax-free, up to limit of £268,275. The remainder of the pension is used to purchase an annuity, the income from which is taxable.

For someone with £1m held in pensions, taking tax-free cash would leave £750,000 to buy an annuity. Based on current rates, this would provide an illustrative income of £44,183 a year for a healthy 65-year-old, with payments escalating by 3% to help offset inflation.¹ Note that annuity quotes vary by provider and personal circumstances and can change frequently.

In drawdown, the amount you can withdraw is less certain but an often-quoted figure is 4-5% of your pot. That’s in order for your savings to last an estimated 30 years. Based on that - and assuming you withdraw your full tax-free cash from a £1m pot - the remainder would generate between £30,000 and £37,500 income per year. 

• Read: The 4% rule: the basics

Importantly, the money used to generate this income will remain in your possession to be used as you wish in the future.

The government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 138 3944.

Our team of retirement specialists can provide you with free guidance to help you with your decisions. They can also provide advice and help you select products though this will have a charge.

Got a burning question you want to ask? Why not drop us a line. Click here to ask your question.

• Read: How to create a retirement plan in 15 steps
• Read: How to make your money last (no matter your age)
• Read: The tax benefits of a SIPP

Source:

¹ SharingPensions.co.uk annuity rates, 2 April 2026. 

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.