Financial wellbeing and retirement specialists are urging new graduates entering the workforce this September not to neglect their pension from day one.
Experts at WEALTH at work have explained that delaying contributions to your pension pots by just a few years could leave you significantly behind your peers, potentially forcing you to delay retirement if you procrastinate for too long.
Pension pots grow over time, both through additional contributions and fluctuations in the market and chosen investments. Time is one of the most crucial and valuable tools for your retirement, due to the cost of delay.
The experts elaborated: “If someone aged 25 saved £7,000 per year into a pension for 10 years (£70,000) and then stopped contributing and left it to grow for a further 20 years, they could have £245,291 by the time they reach age 55.”
This assumes a moderate 5% growth on their pension fund.
Conversely, if they had waited until they were 35 to start contributing, they would need to extend their pension contributions by 20 years to achieve the same amount.
They would also have to set aside £140,000 instead of just £70,000 to achieve the same results in retirement.
Pension experts are stressing the benefits of starting early with savings, noting: “The earlier someone starts saving into a pension or other savings the better, as it gives more time for the money to grow, and it also benefits from the power of compounding over the individual’s working lifetime.”
They passionately advocate for newcomers to the workforce to capitalise on workplace pensions and the advantages of auto-enrolment.
At present, under the auto-enrolment scheme, every employee aged 22 up to the state pension age, with annual earnings above £10,000, is automatically enrolled into their workplace pension.
In this arrangement, employees contribute part of their salary tax-free, while employers must chip in with at least a 3% contribution too.
Jonathan Watts-Lay, Director at WEALTH at work, underlined the importance of even modest increases in contributions: “Many don’t realise the significant difference a small increase to their pension savings can make.
Small increases can have a significant impact on an employee’s pension savings, but small reductions in pension savings can also make a huge dent.”
