Someone aged 22 earning £26,000 pa could have a pension pot worth £235,000 at 68 if they contributed AE minimums during their working life. Taking small steps to contribute above and beyond AE minimums can boost this even further. Increasing your contribution to 6% with your employer sticking at 3% could see you with a pension of £265,000. Hiking your contribution to 8% would see your pot grow to around £324,000. If your employer matched your 6% with 6% of their own, then that final pension could total £353,000. All calculations made on HL’s pension calculator. Based on investment returns of 5% pa after fees.
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Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: “Auto-enrolment is playing a huge role in helping people build bigger retirement pots. People joining the workplace today have the benefit of being auto-enrolled throughout their working lives. HL calculations show a 22-year-old earning £26,000 per year could have a pension pot worth £235,000 if they contribute at AE minimums throughout their working life. For some, this along with the state pension will give them what they need in retirement – or at least a good start.
If you need more in retirement, then small steps can make a really big difference. Boosting your contributions above auto-enrolment minimums can grow your pension. Increasing it to 6%, for instance, could see you with £265,000 at the age of 68. Deciding to go further and contribute at 8% could see it head above £320,000. It shows that building habits such as boosting contributions every time you get a pay increase can really pay off when it comes to retirement.
Your employer may also have the chance to play a bigger part. Some are willing to increase their pension contribution if you increase yours – the so-called employer match. So, if you have the extra money to spare, then you could see a real hike in your employer contribution too. For instance, if you were to contribute 6% and your employer were to match it then you could see your pension pot grow to £353,000.
It shows the importance of checking in on your pension from time to time to see how it is performing. Think about what a good retirement might look like for you and what that might cost so you can get a sense of how much you might need on an annual basis. Online pension calculators can not only tell you how big your pension pot might be at retirement, they can also show you how much income that pot might give you so you can see if you are on track for the retirement you want. If you are – great! If you aren’t, then you’ve got time to do something about it, and taking small steps when you can, might help you close the gaps quickly and mean there are no nasty surprises at retirement. The most recent findings from HL’s Savings and Resilience Barometer showed higher earners were at risk of a retirement shock with a pension savings gap of £64,800. This means many face the very real prospect of not being able to maintain their lifestyle in retirement – taking action early can make all the difference.”
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