Young people have been urged to not delay saving into their pensions after new analysis reveals postponing by just five years in your 20s can result in a £40,000 drop to retirement funds.
According to calculations by Standard Life, those who begin working on a salary of £25,000 per year and pay the minimum monthly auto-enrolment contributions from the age of 22, could have a total retirement fund of £210,000 by the age of 68.
But waiting just five years until age 27 to start contributing could result in a total pot of £170,000 – £40,000 less.
Postponing for even longer could have an even bigger impact on a retirement pot, the pensions and insurance company warned.
For example, those who start saving at 32 will have £103,000 less, and those aged 42 will have £127,700 less – depending on how much is put away.
The main reason those who choose to start contributing later will build a smaller nest egg is because they will miss out on the power of compound investment growth.
Dean Butler, managing director for retail direct at Standard Life, urged people in their early 20s to seriously think about putting money away each month into their pension – even if it is just the minimum auto-enrolment amount.
This is 5 per cent for employees, which will be topped up by at least 3 per cent by employers.
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Mr Butler said: “Pension saving might not be the top of the priority list in your twenties, however it’s hugely beneficial to start contributing to a pension from an early age.
“So, if your finances permit and your circumstances allow, the sooner you engage with and begin to contribute to your pension, the better your ultimate retirement outcome could be.”
Those who delayed entry into the workforce to pursue further education may be caught out by this and need to contribute more later on to meet their retirement goals, Mr Butler said.
He added: “Similarly, if you choose self-employment in your twenties, it’s worth opening a personal pension, as you won’t benefit from automatic enrolment via a workplace and could miss out on important early-career contributions.
“For those in a position to do so, consistently paying into a pension from as early an age as possible and topping up payments, especially in your 20s, 30s or early 40s, can make a massive difference over time.
“The longer you wait to start the worse off you could be by the time you stop working, so if you’re able to save into a pension your future self is likely to thank you for it.”
How can I maximise my pensions savings?
There are a number of ways to boost your retirement pot, according to Standard Life.
Take advantage of your workplace pension: Make sure that you are taking advantage of all the benefits of your pension plan support offered by your employer. If your employer offers a matching scheme, for example, where if you pay additional contributions, they will match them, consider paying the maximum amount your employer will match to get the most out of it. Put bonuses and overtime pay away: If you are getting a bonus this year, or receiving overtime pay, you could pay some or all of this into your pension plan to save you paying some big tax and national insurance deductions, meaning you could keep more of it in the long run. Use your pay rise for a boost: If you are able to, think about paying a little more into your pension when you get a pay rise or have a little extra savings. Watch your savings closely: Keep an eye on your investments, the returns they are giving you, and whether they match the level of risk you are comfortable with. Higher-risk investments potentially see more growth over the long term, but their value might go down and up more frequently and dramatically. Lower-risk investments, like particular types of bonds, are less likely to see drastic decreases in value, but you might not experience particularly significant growth with these. In your 20s, you might feel happier with some higher-risk investment, as your pension has more time to potentially recover from dips in the market – but this will not be right for everyone. Read More Details
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