The UK’s biggest pension, as tracked by the Office for National Statistics, stands at approximately £11mn, a Freedom of Information request by RBC Brewin Dolphin has revealed.
According to figures from 2022, it is estimated that some 929,000 savers have accrued pension wealth of £1mn to £2mn, with 128,000 sitting on pensions worth £2mn to £3mn, and 46,000 investors in the £3mn plus bracket.
The ONS estimated that a person needs to have pension wealth of £374,500 to be among the top 10 per cent of retirement savers, with the median or typical figure in the top decile standing at £637,500.
Brewin Dolphin calculated that someone looking for a comfortable retirement requires at least £37,300 per annum to live on.
To hit that target, the retiree would need a pension wealth of £630,000 in today’s money.
Rob Burgeman, investment manager at RBC Brewin Dolphin, said: “Building a war chest for retirement can seem extremely daunting at first, but money saved regularly over long periods can produce quite dramatic results, as the ONS data demonstrates.
“Whatever your income, there are a couple of powerful weapons to be aware of in your armoury when planning for retirement.
“Making use of tax reliefs is crucial: a basic rate taxpayer saving £80 of take-home pay into a pension gets a £20 top-up from HMRC, making a total investment of £100 — or an instant return of 20 per cent.”
Burgeman explained that there is the “mathematical phenomenon of compounding”, also known as compound interest.
“Factoring in tax relief, a £100-a-month plan would only actually cost an investor £80 per month, bringing total contributions to £9,600 after 10 years,” he said.
“But as your pot grows you are gaining interest on your increased amount, meaning your pension wealth could balloon to £15,592, assuming 5 per cent annualised returns after fees.”
He explained that over 20 years, the same plan could see contributions of £19,200 more than double to £41,274.
Another decade still and £28,800 could become £83,572. After 40 years, contributions of £38,400 could soar to £153,237.
“There’s no question that the magic of compounding mixed with some sound tax advice makes for an extremely potent cocktail,” he said.
Brewin Dolphin explained that in order to have £11mn in pension wealth, investors would need to start early and hope for healthy returns.
The firm found that an 18-year-old entering the workforce today would have to invest £49,260 annually (or £4,105 a month), including tax relief, to accumulate an £11mn pot by the age of 68, assuming annualised returns of 5 per cent.
While the professional and personal circumstances of the £11mn investor are unknown, they could expect to enjoy an annual income of £540,000 over a 30-year retirement period.
Burgeman added: “Quite how this individual built up an incredible £11mn pension we will never know, but good pension planning is something everyone should undertake regardless of income.
“These days thanks to employer contributions and auto-enrolment, it’s possible for people even on modest incomes to reach millionaires’ row by the time they retire.”
Recently, the government announced it would be supporting a private members bill which would reduce the minimum age of auto-enrolment from 22 to 18.
“Someone entering the workforce today aged 18 and paying £389-a-month into their pension could reasonably expect to retire with a £1mn pot aged 68 assuming annualised returns of 5 per cent after fees,” Burgeman said.
“In the first decade, the investor’s pot could grow to £60,181 based on investments of £46,680.
“Ten years later their nest-egg could have more than doubled in size to £158,210 based on contributions of £93,360. And after 30 years, they could have accumulated £317,889 on investments of £140,040.”
After 40 years in the workforce, they could be sitting on a retirement fund of £577,990 based on contributions of just £186,720.
Meanwhile, after 50 years, the pot could hit the seven-figure mark on contributions of just £233,400.
“The figures leave little doubt that compounding can be like rocket fuel for your pension,” Burgeman said.
“And if you don’t live to spend it all, you can usually pass it on to the next generation without losing anything in inheritance.”
The ONS said the top decile of pension wealth is skewed heavily towards males (66 per cent v 34 per cent) and includes “some very wealthy outliers” including the £11mn investor.
sonia.rach@ft.com
What's your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com
