How to become a pension millionaire

How would you like to retire with a £1 million pension pot?

It may sound fanciful but such a goal could be in reach with the right investment strategy. Of course, it won’t be easy. Hitting this target will require the right funds to be selected and a decent number of years left for your money to grow. However, achieving a seven-figure sum after decades of hard graft should be enough to guarantee you a decent standard of living when you decide to retire.

Here we look at what you need to know about pension pot building, how much you need to be putting away, and which investment funds are worth considering.

Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and tax rules can change. Chelsea does not offer advice and so if you are unsure of anything please contact an expert adviser.

Planning your retirement

It’s easy to overlook your retirement – particularly if it’s decades away. After all, most of us have plenty of competing financial obligations. But the simple fact is that the earlier you start, the greater your chances of ending up with that magical £1 million to fund your later life.

So, where do you begin?

Well, the first task is to establish where you currently are in your retirement planning journey and what you have in place. For example, do you possess a mishmash of pensions over the years or have you built a decent nest egg in various individual savings accounts? It might be worth accumulating these various pensions and savings with one provider to make everything easier to manage – and give you a clearer idea of how much you’ve already set aside. However, you’ll need to check the details of what arrangements are in place with the various firms should you move the money, particularly if penalties apply.

How much will you need?

This will largely depend on what you have in place and how long you have left before retirement. For example, a 25-year-old basic rate taxpayer would need to save £552-a-month (£6,623-a-year) for 40 years, based on an average annual investment return of 5%, according to Vanguard**.

But what if you’re older? Research suggests someone aged 45 with £200,000 saved would need to contribute £1,505-a-month to hit seven figures if they retired at 68-years-old**. If they were on an annual salary of £65,000, this would require them to contribute almost 28% of their pay, which is a substantial amount.

Risk and reward

The fact is that it’s possible for many people to build a £1 million pension pot but it’s likely to require a lot of financial sacrifices elsewhere in their lives. Children, outstanding debts, changes to living arrangements, and work situations are all likely to have a bearing on someone’s ability to save. You also need to make sure your pensions and investments meet your needs, as well as your attitude towards – and ability to take – risk.

The fact is that you will need to take an element of risk in order to generate an above-inflation return and even more if you want to hit that £1 million figure.

Where to invest your pension?

This depends on how much you have accumulated and the length of time before retiring. Let’s start with those who have at least four decades of saving ahead. These individuals can afford to take more of a risk with their money. This means they can look at investment funds with exposure to more volatile parts of the world, with the hope that this extra risk will pay off in the shape of enhanced returns.

Our first suggestion is M&G Global Emerging Markets. This is a highly active fund that maintains a focused portfolio of 50 to 80 companies. The contrarian nature of this fund makes it an attractive differentiator for a portfolio with the manager finding opportunities across emerging markets including China, South Korea, Brazil, Taiwan and India***.

If you have a decent investment time horizon then it makes sense to put your money into structural growth trends that are likely to shape the future global economy. That’s the focus of the Liontrust Sustainable Future Global Growth fund, which invests in a fairly concentrated portfolio of 40-60 stocks. This flexible portfolio has delivered excellent returns over the past two decades by focusing on sustainability and strong company management teams.

Another option for investors of any age – and particularly those with less time to save – is to opt for a multi manager fund. These invest in other funds, as opposed to individual stocks.

For example, the VT Chelsea Managed funds. Our range of funds consists of four portfolios, each suitable for different risk appetites, offering a complete investment solution. They range from VT Chelsea Managed Monthly Income and VT Chelsea Managed Cautious Growth, to VT Chelsea Managed Balanced Growth and VT Chelsea Managed Aggressive Growth.

Regardless of the investment you choose, our final message is to pay attention to the financial foundations you have in place and revisit those decisions at least every year. Don’t put money into pension funds and forget about it – before coming back to it 10 years later and wondering why your investments haven’t performed as well as you’d expected.

*Source: Legal & General, annuity calculator
**Source: Vanguard, 15 August 2024
***Source: fund factsheet, 28 February 2025

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.