How much your pension will provide

It's time you took a look at what your pension is going to give you, so that you know whether you're contributing enough.

New research from Scottish Widows reveals that half of us don't know how much we're contributing to our pensions – or even if we are contributing at all.

Of those who do know, I wonder how many have tried to estimate whether they're contributing enough to have a reasonable retirement.

To try and give you an idea, here are some very rough guidelines of what you might expect: 

You will also get the state pension on top, whatever that may be at the time.

The income shown in my table is in today's prices, so don’t panic - your earnings might be a lot higher when you come to retire because of inflation.

The reason I have shown your income in today’s prices is so that you can compare it more easily to what you could buy today. Learn more about “today's prices” – otherwise known as “real prices” – in What are "real prices?"

The table is based on what income men can expect to receive if they retire today at 65. Women can expect a few hundred pounds less per year, because they live longer and their retirement savings need to stretch further. However, a change has already begun due to incoming equality laws, which are seeing women's annuities rise a tiny bit and men's shrink, and they will eventually equalise.

Your health, postcode and whether you smoke will increase or decrease the retirement income you can get. Also, decisions about how you take your pension (such as whether you want your income to rise each year, whether you want to take some of your pension as a lump sum, and whether you want your spouse to keep receiving benefits when you die) all have an impact.

To be sure of getting the best pension, you need to shop around. Don't automatically assume you have to buy a retirement income – an annuity – from your own pension provider.

Regularly assess your retirement plan

I have assumed your investments will grow at 4% per year. In reality, we have no idea how much your investments will grow or if they will grow - but this is a reasonably conservative estimate by most people's measure.

Insurers will also continue to amend how much income they will pay you for a fixed pot of money. A £100,000 retirement pot today might get you £5,700pa, but tomorrow the insurer might let you cash it in for £5,500pa or £5,900pa.

For these reasons, it’s likely that - despite my best efforts - the estimates in my table won't come to pass.

That’s why it is absolutely vital that you reassess your retirement plan once a year, adjusting your contributions depending on your investments' performance and the changing retirement income that insurers will pay you. I wrote how you could approach this annual assessment in You can retire on less than you think.

Starting early helps

Notice that if you save £200pm from age 30 for 35 years you can expect to get £2,000 (approaching 20%) more in income per year than if you invest £400pm from age 45 for 20 years, even though you invested £12,000 less altogether.

What's more, you're less at risk from short-term blips if you start earlier.

Increase your chances of a higher return

Even though cash savings and bonds are likely to perform worse than shares over the long run, if you're unlucky, shares can still also lose to inflation over long periods, which means rather than averaging 4% per year, you get nothing – or less than nothing.

However, that becomes far less likely if you invest regularly for as long as you can – in good years and bad – in cheap funds, such as index trackers. Incidentally, that is what the world's most successful investor, Warren Buffett, recommends that the vast majority of us should do.

Check out your pension or fund provider to see if it offers index trackers. If not, consider switching providers.

Detailed research from three LSE professors, Dimson, Marsh and Staunton, shows that a good way to significantly reduce the risks of losing to inflation is to invest in eight different markets. You can get index trackers for dozens of different countries.

Finally I have based my figures on investing in pensions and buying a conventional annuity, but we have other options that are becoming increasingly better for some, such as investing through share ISAs and getting an income drawdown. It's worth spending time doing your own research.

More: Compare savings accounts and share ISAs | Best pensions for children | Four ways to save for retirement