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Young people have been urged not to neglect pension savings, after analysis from Standard Life found out that delaying pension contributions by five years could mean £54,000 less in retirement.
The analysis found that those who begin working on a salary of £25,000 per year and pay the minimum monthly auto-enrolment contributions (5 per cent employee, 3 per cent employer) from the age of 22, could have a total retirement fund of £434,000 by the age of 66. This is not adjusted for inflation.
However, those contributing from age 27 could have £380,000, £54,000 less in their pension pot.
Standard Life said that the key difference was that those savers who begin contributing to their pension later in life could miss out on compound investment growth, highlighting the figures as demonstration of the challenge that delaying saving for several years can create in the long run.
Commenting on the research, Standard Life’s managing director for retail direct, Dean Butler, said: “It’s remarkable to see how just a five-year delay in saving in your 20s can significantly reduce the pension you retire on by tens of thousands of pounds.
“At the start of a career and when first earning money it can be tempting to spend as much as possible.
However, Butler said that the sooner savers engage and contribute to their pension, the better their ultimate retirement outcome could be.
He added that considering the potential retirement impact of joining the workforce later, for instance, due to education, savers might need to increase contributions to reach their expected retirement pot.
Butler said that those who become self-employed in their twenties should consider opening a personal pension as they won’t be auto-enrolled into a workplace pension and “could miss out on valuable early-career contributions”.
“Our calculations show that contributing to your pension from the very start of your career can mean the potential investment growth is much more significant and can result in a much larger retirement pot,” he said.
“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.”
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