New research from the Institute and Faculty of Actuaries (IFoA) has put a spotlight on life choices that could dramatically reduce an individual’s retirement pot. The IFoA has investigated the numerous challenges many face while saving for their golden years.
Its assessment pinpointed six events that can severely affect pension contributions, which may give rise to shortfalls in future. Surprisingly, the most at-risk group are those who postpone starting their pension savings.
Waiting until 35 to save instead of 25 could see potential savings drop from £800k to £500k. According tothe Express, Alexandra Miles, of the IFoA Pensions Gap working party, said: “It is concerning that an individual could stand to lose a staggering amount of money during some of the most significant moments of their lives.
“On top of this, they may be largely unaware of these hidden costs and the drastic impact that short-term decisions can have on their pension savings over the long-term. Some may be faced with multiple significant moments throughout their lifetime, further compounding the issue.”
In addition to delaying contributions, the IFoA identified five other key factors that influence pensions, which are detailed below:
- Switching from full-time to part-time work, potentially losing up to £200,000
- Not starting a pension at 25 and waiting until age 35, could lose a saver £300,000 over a lifetime
- Not taking advantage of extra employer contributions, worth at least £100,000 over an average working lifetime
- Opting out of a pension for five years, potentially costing £100,000 by retirement
- Freezing pension contributions during six months of maternity leave, potentially costing £30,000
- Getting divorced, potentially costing an ex-partner £77,000
As a consequence, the IFoA is advocating for more active roles for both employers and governments in helping with savings progression. Its team have also outlined the importance of personal action to mitigate potential pension losses.
IFoA President Kartina Tahir Thomson said: “The numbers presented in this report are stark. When we are making some of the biggest decisions in our lives, it is worrying that so much is at stake.
“On top of this, many people are unaware of the hidden costs of their decisions that may not impact them until years later, during what could be considered the most vulnerable years of their life.”