Graduates with student debt end up with pension savings around 20 per cent lower than those without any debt, according to analysis by Royal London.
Royal London modelled the likely size of future pension pots for three groups saving through their working life: a non-graduate on average wages, a graduate with graduate wages and no student debt and a graduate with graduate wages and student debt.
It found that while having a degree leads to higher lifetime earnings and a larger average pension pot, the gap between graduates and non-graduates would fall because student loan repayments leave graduates with less money to save.
The estimated size of a pension pot for a non-graduate on average wages was £85,000 while a graduate with graduate wages and no student debt would have a pension of £185,000.
This compares to a graduate with graduate wages and student debt, who would have a pension of £150,000.
In terms of annual income, and based on an illustrative annuity rate of 5 per cent, the impact of a lifetime of repaying student debt would be a reduced pension income of £1,750 a year throughout their retirement.
Jamie Clark, business development manager for Royal London Intermediary pension business, said: "New graduates are already facing a squeeze on their disposable income which is making it harder for them to get a foot on the property ladder.
"But this analysis shows that a lack of disposable income is also likely to make it harder for them to save for the long-term as well.
"We estimate that graduates with student debt could easily end up with pension pots one fifth lower than the levels enjoyed by those graduates who enjoyed tuition-fee free education."
damian.fantato@ft.com
