Delaying pension contributions by just five years could leave Britons £67,000 worse off in retirement, new research has shown.
Experts warn that many people are waiting far too long to begin planning for their retirement years,
Postponing pension investments can have devastating long-term consequences, with a 15-year delay potentially reducing a pension fund by £169,000, research from St James’s Place has revealed.
Their report showed that retirement planning typically doesn’t become a priority until people reach age 55, with just over 10 years until state pension age.
This late start to pension planning is leaving many at risk of significant shortfalls in their retirement savings, the research suggests.
The generational divide in retirement planning is particularly stark, with only one-in-ten Gen Z (aged 18-27) and two-in-five Millennials making it an advice priority.
Instead, younger generations are focusing on more immediate financial concerns, with better budgeting taking precedence.
This late start to pension planning is leaving many at risk of significant shortfalls in their retirement savings
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Claire Trott, Divisional Director of Retirement and Holistic Planning at St James’s Place, said: “Whilst it is perhaps unsurprising that advice on budgeting better, investments and savings, and managing debt is more pressing at a younger age, now that individuals have more responsibility for their retirement finances, it’s more important than ever to start planning early
“The more time you have to build up your savings pot, the more time it has to compound, resulting in a larger pot when you retire. If you leave it too late, it can be difficult to make up the deficit..”
If people invested £500 a year starting at age 30, an individual could accumulate £268,000 by age 60 through consistent annual contributions.
However, waiting until age 35 to begin would result in a fund of just £201,000 – a substantial £67,000 reduction.
The consequences become even more severe with longer delays. Beginning at age 40 would leave someone with £146,000, while waiting until 45 would result in just £99,000 – a staggering 63 per cent less than if they had started at 30.
To achieve the same retirement outcome after a late start requires significantly higher contributions. Those beginning at age 45 would need to invest an additional £8,508 annually to catch up. These calculations assume an average annual investment growth of 4.60 per cent before charges.
Trott continued: “The retirement landscape is unrecognisable to what it was only twenty years ago. Future generations of retirees are grappling with unique economic circumstances, compared with their parents and grandparents, which will impact their retirement finances.
“It’s therefore important that individuals do what they can to take as much personal control for their future as possible. Making an early commitment to retirement saving is vital, and putting money aside for the future must be seen as a necessary expense and an integral part of budgeting.
“Given there are many other financial pressures today, it’s important to make good decisions about the money you’ve got, and it may be worth seeking financial advice or guidance to support decision making and to help achieve the desired retirement lifestyle.”
The Pensions and Lifetime Savings Association (PLSA) has outlined clear financial targets for different retirement lifestyles. The figures show that the cost of a comfortable retirement has risen significantly due to increased living costs and changing lifestyle expectations.
For a basic “minimum” standard of retirement, single people need £14,400 annually, up from £12,800 in the previous year. This minimum level covers essential needs, including weekly groceries, a UK holiday and occasional dining out, though it doesn’t allow for running a car.
Those seeking a “moderate” retirement lifestyle will need significantly more – £31,300 annually for single people, marking an £8,000 increase from the previous year.
For a single person, achieving a “comfortable” retirement standard now requires £43,100 annually, up from £37,300 in the previous year. This level of income allows for regular beauty treatments, theatre trips, and two-week holidays in Europe annually.
Trott emphasised it’s never too late to start building pension savings, with several key strategies available to boost retirement funds.
A crucial first step is participating in workplace pension schemes. Those aged 22 or over, earning more than £10,000 annually, are automatically enrolled, benefiting from employer contributions. Taking advantage of employer matching is vital, as many companies will match or exceed additional contributions up to certain limits.
Salary sacrifice schemes offer another opportunity to maximise pension savings. These arrangements reduce National Insurance payments by deducting pension contributions before tax calculations.
Trott concluded: “The true benefit lies in tax relief and the power of compounding. Pension contributions receive immediate tax relief, and the funds grow tax-free. When you retire, you may have to pay tax on some of your pension, but not all of it—typically, 25 per cent of your pension pot can be withdrawn tax-free, up to a certain limit.
“By following these steps and making the most of the opportunities available, you can improve your pension savings and work towards a more secure retirement, even if you’re starting later than planned