Would you like an extra €188,000 in your pension pot? Avoid this crucial saving mistake, under 40s be warned
Workers have been warned that if they don’t contribute to their pensions from a young age, they could be missing out on £188,000.
A study by Standard Life looked at four scenarios to determine how much money a person could save over different time periods.
The pension company claimed that if you consistently saved from the age of 22 with a starting salary of £25,000, you would be on track to accumulate £435,000 in a pension pot by the age of 66.
If, on the other hand, someone only started saving between the ages of 40 and 66, even after starting with a higher salary of £46,500, the worker would only have £247,000 in his pot – he would miss out on a whopping £188,000.
A study by pension company Standard Life showed that people between the ages of 22 and 40 could miss out on £188,000
The study assumes salary growth of 3.5 percent per year and current standard automatic enrollment contributions, which are 3 percent from the employee and 5 percent from the employer.
This shows how it pays to start contributing to your retirement at the earliest possible age and take advantage of additional years of contributions, tax credits and compounded investment returns.
The study did not take inflation into account and growth is an estimate.
Standard Life Managing Director for clients, Dean Butler, said: ‘It’s never too late to start saving and these figures illustrate that even 15 years from now, people can build up significant amounts of money in their retirement benefiting from employer contributions and tax relief.
‘Having said that, what is striking is that the earlier you start, the greater your possibilities.
Over the years, the combination of contributions and compound investment growth can add up.
“If you’re going to save later, it’s important to think carefully about premiums and what the standard automatic enrollment levels will yield when you retire.”
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Early retirement can eat your pot on the flip side
Standard Life’s analysis also looked at two more scenarios where people retire early at the current minimum retirement age of 55.
Quitting saving early reduces the final amount in their pot – and the stats showed the damage of starting and finishing early.
Those aged between 22 and 55 could generate a fund of £218,000, while those who started at age 40 and finished at age 55 could have £95,300.
This study comes after Phoenix Insights, Phoenix Group’s longevity think tank, found that workers over the age of 45 in Greater London and the East of England have, on average, more than 40 per cent more in retirement savings than workers in the Midlands and the North.
Total savings in those regions average less than £98,000 – well below the £248,000 estimated by the Pensions and Lifetime Savings Association to be needed for a moderate standard of living in retirement.