Fidelity personal financial specialist Marianna Hunt returns to answer readers' personal finance questions, and this week a reader asks how to reach a £1m pension pot.

Q. I'm 32 and earn £50,000 per year. I only have about £55,000 in my pension currently and want to grow that to £1m by age 60. What do I need to do to achieve that?

A. Setting a retirement goal this early in a career is a good position to be in. With almost three decades still to run, potential investment growth could do much of the heavy lifting. The £1m figure also carries historical resonance for UK savers: it was long associated with the pension lifetime allowance, the cap on tax-privileged pension savings that was abolished in April 2024, which had made £1m a psychological benchmark for many retirement plans.

Running the numbers through Fidelity's financial modelling tool, Hunt estimates that total contributions equivalent to around 13 per cent of salary would need to go into the pension each year from now until age 60 to reach a £1m pot. Importantly, that £1m is the projected cash value of the pot at age 60, not £1m in today's money.

The contribution burden depends on employment status. A self-employed saver would have to contribute the entire 13 per cent personally. An eligible employee who is automatically enrolled would normally receive at least three per cent of qualifying earnings from their employer, and many employers contribute more or match additional contributions. Under auto-enrolment rules, minimum contributions are calculated as eight per cent of qualifying earnings, of which at least three per cent must come from the employer — well below the 13 per cent the modelled scenario requires, so deliberate extra saving is needed.

A key caveat: qualifying earnings do not mean total salary. Qualifying earnings currently sit between £6,240 and £50,270 a year, so if contributions are calculated on qualifying earnings, a saver may need to contribute a higher personal percentage to ensure the equivalent of 13 per cent of total salary is going into the pension.

The projections assume inflation of 2.5 per cent a year, earnings growing smoothly with inflation, average investment returns of 6.61 per cent a year and pension fees of 0.41 per cent. On these assumptions, the goal looks achievable, particularly if earnings rise faster than inflation over time.

What do you want the money for?

The more important question, Hunt argues, is what the £1m pot is actually for — what kind of retirement lifestyle it needs to fund. The number alone is somewhat meaningless unless the saver knows what that money can buy.

And while £1m sounds like a huge sum today, nearly three decades of inflation mean £1m at age 60 will buy considerably less than £1m does now.

Consider a retiree at 60 with a £1m pension who wants a 'moderate' lifestyle in retirement. According to trade body Pensions UK, that lifestyle includes around £59 a week on groceries, a three-year-old small car replaced every seven years, a fortnight's three-star all-inclusive holiday in the Mediterranean and a long off-peak weekend break in the UK. For a single-person household, the total cost is estimated at £32,700 a year in today's money. Those figures assume the retiree owns their home outright, so anyone still paying rent or a mortgage would need to budget for that on top.

On an equivalent lifestyle, Hunt calculates the £1m pot could be exhausted by around age 82, even assuming the full state pension is received from age 68. The state pension age is legislated to rise to 67 between 2026 and 2028, and a further increase to 68 is scheduled to take effect between 2044 and 2046 — within this saver's expected retirement window — which is worth bearing in mind when planning when pension income will start.

Office for National Statistics figures suggest a 32-year-old man has an average life expectancy of 84, while a woman of the same age is expected to live to 88. They have a 42 per cent and 55 per cent chance respectively of living to 90. There is therefore a significant risk — by some margin — of outliving the savings.

Under the modelled scenario, increasing total pension contributions to around 19 per cent of salary could sustain that lifestyle much longer. At that contribution level, the saver could reach 60 with a pension worth almost £1.4m. Even then, Hunt estimates the private pension savings could be exhausted by around age 95, although state pension income would continue under the assumptions.

Of course, many people will not be spending as much at age 90 as at age 60, so it may be possible to taper spending down over time to make the money last longer.

A changing landscape

Hunt stresses that these projections assume smooth average investment returns. In reality, markets rise and fall, and a major downturn early in retirement could have a particularly significant impact on how long a pot lasts. The modelling also does not factor in major later-life expenses, such as paying for care.

When deciding how much to have in a pension by 60, Hunt suggests first thinking about when you want to retire and what kind of lifestyle you want afterwards, then testing whether the plan can withstand shocks such as a market crash, an inflation jump or care costs, and how long the money may need to last.

She also suggests considering whether saving into an ISA alongside a pension could be sensible. Pensions can be an extremely tax-efficient way to save for retirement, thanks in particular to pension tax relief — with contributions receiving relief at the saver's marginal rate of income tax, and most basic-rate taxpayers benefiting from a 25 per cent top-up on contributions — and, for employees, employer contributions. The trade-off is that the money usually cannot be accessed until the 'normal minimum pension age' — currently 55 for most people, rising to 57 from April 2028. With an ISA, money can be withdrawn at any time.

The two also differ on tax. With a pension, contributions generally benefit from tax relief, and withdrawals can be partly tax free — typically the first 25 per cent under current rules — but may otherwise be subject to income tax. With an ISA, contributions are made from money that has already been taxed, but withdrawals are free of UK income tax. Holding savings across both pensions and ISAs could potentially provide more flexibility and options at retirement.

A £1m pension is an ambitious but potentially achievable target, Hunt concludes. The more important goal, though, is building a retirement plan that can provide the lifestyle you want for as long as you might need it.

This is not financial advice. If you're unsure about what's right for you, you should speak to a qualified financial adviser.

Do you have a personal finance question for our expert? Email asktheexpert@cityam.com