Savers in their twenties could lose more than £21,000 at retirement if they put off making contributions to their pensions for the first five years of working, an adviser has warned.
Advice firm Purely Pensions warned that many young people who started working during the Covid-19 crisis may not have chosen to start contributing towards their pensions, and therefore could miss out on significant amounts of money by the time they reach retirement age.
For example, a person who begins work at age 22 with the average median salary (£27,220 for men and £24,740 for women), who makes contributions of 10 per cent of their salary, pays product charges of 0.4 per cent and achieves average fund growth of 4 per cent annually, would reach retirement age of 68 with a pension pot valued at £170,733.
But if the same individual were to wait until age 27 to begin making contributions, their pension pot would be £149,679, under the same conditions - £21,000 less.
In addition, someone starting contributions at age 32 would reach retirement age with £131,786 – nearly £40,000 less than a person beginning at age 22.
Matthew Amesbury, head of Pension Advice at Purely Pensions, said the impact of the Covid crisis has led many to seek ways of maximising their take home pay and for a large minority of younger people this meant stopping their pension contributions.
Amesbury added: “However, people who fail to begin saving towards their retirement from a young age significantly miss out on the benefits of compounding interest and long-term growth.
“The impact this can have by the time someone reaches retirement is staggering and it could even worsen their later life prospects. Without knowing it, failing to save for retirement in early life could actually be leaving these people poorer in their older years. It may also put individuals under pressure to choose riskier investment options in later life to make up the difference.
“The benefits of pension tax relief and long-term saving significantly outweigh the short-term perks of increasing a person’s take-home pay. Despite the difficulties of the crisis, people should still think first before making changes to their retirement savings and speaking with an adviser is always a good place to start.”
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