Hargreaves Lansdown has revealed how much money people need to set aside each year if they want to have £1m saved when they retire at 68.
After analysing the investment choices of more than 1,500 pension millionaires, the firm concluded people can achieve a £1m pension by starting early and improving their investment returns.
Nathan Long, senior pension analyst at Hargreaves Lansdown, said building a million pound pension "may not guarantee a lifestyle of luxury yachts and fast cars, but it will offer freedom and flexibility" through the saver’s final working days and the possibility to cascade savings down to the next generation.
He said: "Becoming a pension millionaire may not be possible for everybody, but taking hold of the investment reins can provide the chance for a bigger retirement income, greater flexibility when leaving the workforce, or both.
"Getting started can be easier than you think with many investment brokers providing their list of the top funds available. If you are still unsure, paying for financial advice could reap handsome rewards."
The company's research found that if a saver started making contributions as small as £480 a month at the age of 22, then with 8 per cent investment return they could be a pensions millionaire by the age of 68.
But monthly contributions would have to rise to £1,200 a month if an investment return of 5 per cent was taken into account.
Cost of monthly contribution | Investment return |
£1,200 | 5% |
£890 | 6% |
£655 | 7% |
£480 | 8% |
Hargreaves Lansdown also looked at the investment choices made by pensions millionaires, and concluded these people favoured investing in the stock market, with direct shares accounting for almost half of all assets invested.
The other half was invested through funds, but there was a preference for funds that invest in shares rather than fixed interest, the firm said.
There was also a preference for active strategies, since less than 10 per cent was invested passively.
| Most popular funds among pension millionaires (listed alphabetically) | |
Pre – Retirement | In Drawdown |
Artemis Income | Artemis Income |
FP CRUX European Special Situations | First State Global Listed Infrastructure |
Fundsmith Equity | Fundsmith Equity |
Jupiter India | J O Hambro UK Equity Income |
LF Woodford Equity Income | LF Woodford Equity Income |
Lindsell Train Global Equity | Lindsell Train Global Equity |
Marlborough Multi Cap Income | Marlborough Multi Cap Income |
LF Lindsell Train UK Equity | Newton Global Income |
Newton Global Income | Royal London Sterling Extra Yield Bond |
Stewart Investors Asia Pacific Leaders | Stewart Investors Asia Pacific Leaders |
Regarding share holdings, pension millionaires prefered to choose large blue chip companies both pre- and post-retirement, with Aviva, GlaxoSmithKline, BP, Vodafone, HSBC and Unilever among the most popular stocks held by pensions millionaires before and after they retired.
The only company in the top 10 most popular to fall out of favour after retirement was Tesco, which was replaced by Legal & General.
maria.espadinha@ft.com
