MILLIONS rely on pensions in later life but younger people could lose out on vital funds by not investing in one early enough.
Anyone aged between 22 and 40 could face a £188,000 shortfall in their pot, new research from Standard Life has warned.
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The pension provider looked at four scenarios and the types of pots you would receive depending on your circumstances.
It found if you saved consistently between 22 and 66, starting from a £25,000 salary, you would be on course for £435,000 in retirement.
Meanwhile, if you started saving between 40 and 66, even with a higher yearly salary of £46,500, you would end up with £247,000 – a £188k difference.
The figures show it pays to start contributing to your pension from as early an age as possible, even with a lower starting salary.
Dean Butler, managing director for customer at Standard Life, said: “It’s never too late to start saving and these figures illustrate that even over fifteen years, people can accumulate significant sums in their pension which benefit from employer contributions and tax relief.
“That said, what stands out is that the earlier you start, the greater your options.
“Over the years the combination of contributions and compound investment growth can really add up.
“If you are going to start saving later then it’s important to think carefully about contributions and what the standard auto-enrolment levels will generate in retirement.”
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Standard Life also looked at what someone’s pension would look like if they started contributing aged 22 and took it out aged 55, based on a starting salary of £25,000.
It found someone in this situation would end up with a £218,000 pension pot.
Meanwhile, someone starting adding into their pension from 40 on a £46,500 salary and taking it out aged 55 would end up with a £95,300 pot.
Of course, it’s worth noting the figures are estimations and don’t factor in any changes in inflation and salary increases.
But they do serve as a rough guide of what you could expect later on in life, should you not invest in a pension early enough.
How to boost your pension
There are plenty of other ways beyond adding to your pension from an early age that can boost your pot. Here are just a few.
Boost your state pension
The research from Standard Life focused solely on private pensions, but you’ll want to boost your state pension as well.
You can do this by maxing out your number of National Insurance (NI) years.
You need a minimum of 10 NI years to start receiving a state pension, and 35 to receive the maximum amount – worth £203.85 a week.
But if you’re coming up to state pension age, currently 66, you can plug any missing gaps in your NI record to ensure you get the maximum amount when you reach retirement age.
You can buy missing NI years on the Government’s website.
Up your workplace pension contributions
A number of employers automatically add money into an employee’s workplace pension through auto-enrolment.
Previously, workers had to decide whether they wanted to join a workplace pension scheme.
But since 2012 employers have to now automatically enrol eligible workers into one.
Through auto-enrolment, your employer has to put 3% into your pot each month and you 5%.
But you can increase your percentage and ask your boss to match it, boosting your pot when it comes to retirement.
Invest in a LISA instead
You don’t have to add more into your pension pot and can opt for a Lifetime ISA (LISA) instead.
You can add up to £4,000 a year into one of the accounts and receive a 25% bonus from the Government on top.
You can open one between 18 and 39 and then access it from the age of 60, if you’re using it for your retirement.
Of course, there’s no employer contribution with a LISA, but they can be a useful supplement for people who already have a workplace pension.
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