Example: Sacrifice the coffee
Brewin Dolphin suggested clients could boost their pension fund by over £22,000 for the price of a morning coffee.
For example, assuming £2.50 spent each working day for a flat white would equate to £625 a year. Apply basic tax relief of 20 per cent and this adds £156.25, increasing the total contribution for the first year to £781.25.
Investing this amount from 45 years old over the course of 20 years, assuming 1.60 per cent annual inflation on the cost of the coffee and a conservative annual rate of growth within the pension of 2 per cent.
|Age||Annual coffee saving||Annual pension contribution with basic rate tax relief of 20%||Running total with 2% growth p.a. (net of charges)|
|46 (year 1)||£625||£781.25||£796.88|
Total saving into a pension fund: £22,372.96. If the growth rate within that pension fund were 4 per cent net of charges, this saving would increase to £27,675.08.
Ms Alley commented: "This is not a hopeless situation. Many people are unaware of the long term impact adjustments to their discretionary spending can make. The financial effect of small sacrifices made now could be multiplied in a pension over a 20-year term, thanks to potential investment growth."
This comes as research from Aegon UK revealed that while, on average, people in the UK currently hope to retire to some degree at aged 64, the rising state pension age and a reduced pension pot due to lost contributions means many people will need additional income until their state pension kicks in.
Steven Cameron, pensions director for Aegon, commented: "With the likelihood of further state pension age increases, a growing proportion of people will simply be unable to stay in work until their state pension kicks in.
"This is why it is crucial for the government to allow people access to their state pension from an earlier age, for example 60, at a reduced level to make it cost-neutral.
"This would mirror the pension freedoms we now have within private pensions and reflect the changing and more varied needs of individuals in later life."