Delaying auto-enrolment contributions for five years could mean employees are missing out on more than £100,000 in their pension fund, according to the latest figures from Standard Life.
This analysis, which shows the benefits of compound returns, looks at the size of a pension fund at retirement if employees made standard AE contributions from either the age of 22 or 27. Those who started at 22, the age at which they are automatically enrolled into a workplace pension, would end up with a total retirement fund of £424,618 – assuming an average salary of £23,000 a year, and contributions of 8 per cent.
However those waiting five years would end up with a total retirement fund of £312,266 — over £112,000 less. Standard Life points out that delaying further would have an even larger impact of the size of their eventual retirement funds.
Standard Life says pension are unlikely to be top of many young people’s priority list, particularly given the challenges of rising living costs. But it says it analysis hopefully highlights the trade-offs when it comes to balancing near and longer-term financial priorities.
Standard Life managing director for customer savings and investments Jenny Holt says: “While times are tough right now with the cost of living continuing to climb, it can be tempting to put off thinking about your long-term financial future and focus purely on the short term.
“However, as our analysis shows, if your finances permit, the sooner you begin to contribute to your pension, the better your ultimate retirement outcome will be.
“Our calculations show that contributing to your pension from as early an age as possible means the impact of compound interest is much more significant and can result in a much larger retirement pot. 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.”