The sooner you get started, the sooner you’ll start receiving tax relief from the government – and any contributions your employer adds. Plus, your pension pot will have longer to potentially grow in value.
It’s also true that if you leave it until later, you’ll probably have to pay in more to afford the retirement you want.
As you can see from the example below, starting to make payments into your pension earlier can really pay off.
|Start at age 20 Retiring at 65||Start at age 30 Retiring at 65||Start at age 40 Retiring at 65|
|If you paid in £200 a month, here’s what you’d have built up by the time you retired:||£96,600||£75,000||£54,800|
|You’d have received this much in tax relief and contributions from your employer:||£120,000||£94,400||£68,500|
|So you’d end up with a pension pot of:||£217,000||£169,000||£123,000|
|Which could buy you a taxable income of this much a year (in today’s prices) as at April 2015:||£10,000||£8,020||£6,000|
These figures are based on a person paying into the Aviva Company Pension, investing in the mixed investments lifestyle approach, at a growth rate of 2.4%* a year and an annual charge of 1%. Employer contributions are assumed to be matched at £200 a month throughout the period, and tax relief is at the basic rate. The taxable income is assumed to be from an annuity, and the annuity is assumed to have no tax-free cash lump sum taken, no increase in line with inflation and is paid for the rest of the individual’s life, with a payment guarantee for a minimum of 5 years, even upon death.
*This is the growth rate net of inflation at 2.5%.
Please note: This table is for illustrative purposes only. The value of your pension plan can go down as well as up, and you may not get back the amount paid in.
Don’t worry too much if you’ve left it till later to start paying into a pension plan. No matter when you start, you could still benefit when you retire. Plus there are things you can do to give your pension pot a boost.
It depends on your situation. At the moment, the maximum full state pension is £155.65 a week. The amount you get may well be lower, and depends on your national insurance record.
Please take the time to read the essential guide to your scheme, which includes the key features and terms and conditions.
Your company pension scheme
Your company stakeholder pension scheme
Millions of us are being automatically enrolled into pension plans. Are you?
Use our calculator to see how much you might get when you retire.
Take five minutes to work out how much you can afford to pay into a pension plan.