YOUNG savers could boost their pension pots by tens of thousands of pounds with an easy saving trick.
All they need to do is contribute to a retirement fund from an early age, according to Standard Life.
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If you start adding to a pension pot at the age of 22, you’d have up to £122,000 more when you retire than if you started at 27.
This counts for any 22-year-old who begins working on a salary of £25,000 per year and pays the standard monthly auto-enrolment contributions (3% employee, 5% employer).
Adding to a pension pot then will mean they have about £459,000 in total retirement funds by 68, not adjusted for inflation.
In comparison, someone who starts contributing at 27 would have total savings of about £337,000 – £122,000 less.
Experts also say the longer you wait, the more you could miss out on in the future.
For example, your funds will be down by £216,000 if you start saving at 32, and if you wait until you’re 37 you’ll miss out on £288,000.
The idea is that those paying later on in life won’t benefit as much from potential investment growth. That’s because the money you save is invested in stocks, shares and bonds.
So, the earlier you save, the more chance the investments have to grow.
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It just means young people are being urged to start saving now despite the cost of living rising.
Dean Butler, managing director for retail at Standard Life said: “It’s amazing to see how just a five-year delay in saving in your 20s can significantly reduce the pension you retire on by tens of thousands of pounds.
“While times are tough right now with the cost of living continuing to climb, it can be tempting to put off thinking about your long-term financial future and focus purely on the short term.
“Our calculations show that contributing to your pension from as early an age as possible means the potential investment growth is much more significant and can result in a much larger retirement pot.”
Currently, employers must automatically enrol workers into a pension scheme and make contributions if they are aged between 22 and the state pension age and earn at least £10,000 a year.
Bosses have had to automatically enrol staff into pension schemes since October 2012 to get workers saving for their golden years.
The only exception is if you’re under the age of 22 or earn under £10,000, in which case you have to ask to opt in.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
Crucially, the contribution you make as an employee is deducted before tax – so the actual amount you’re putting away is less than it sounds.
For example, if you pay 20% tax on your earnings, and your pension contribution is £100, this only really costs you £80 as this is how much that amount would have been worth after tax.
While opting out of a workplace pension would increase your monthly salary, it’s best to only do this as a last resort, as you’ll have less in later life.
How else can I boost my pension pot?
There are also other ways to boost your pension pot early on other than opting into your workplace pension.
For instance, if you’ve had a number of different jobs over the years, it’s likely you have a few pension pots – and you might have old ones you’ve forgotten about.
Tracking down old pots and combining them into one not only means less admin, but it could help your savings grow faster.
If you have lost track of old savings pots you can use the pension tracing service to find them.
It’s also important to get help from others if you need it.
Some parents might get to a point where they’re able to afford to put some of their own money aside for their children through something like a self-invested personal pension pot (SIPP).
Grandparents can also pay into such a pot, with a maximum contribution of £2,880 per year.
On top of that, you’ll get a 20% tax relief top up from the government which means up to £3,600 can be contributed to the child’s account a year.
