Britons may be able to save £334 a month by adjusting pension contributions – can you?

4 mins read

The analysis, conducted by digital wealth manager Nutmeg, demonstrates how critical it is to start making pension contributions as early in working life as possible.

Any contributions made early on will only ease pressure later on, when objectives like starting a family or buying a house become primary.

Annabelle Williams, personal finance specialist at Nutmeg, said “when things are tight, opting out of pension payments can seem like an easy decision to make”.

Delaying pension contributions from 25 to 30 will mean a person needs to save an additional £133 per month, rising from £496 to £629, if they wish to retire at 55 with an annual income of £13,000.

If the delay increases from five years to a decade, this figure explodes to an additional £830 per month.

In order to enjoy a more comfortable retirement income of £19,000 a year, a 25-year-old would need to save £716 per month, rising to an eye-watering £1,200 if they delayed until aged 35 and still wished to retire at 55.

This, it should be noted, is an amount that is already out of reach for most 20-somethings whose income may already be gobbled up by rent and tuition-fee repayments.

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The analysis is no less startling for couples planning their retirement. A couple who start saving at 25 would need to put £972 away together every month to retire at 55 on a £26,000 yearly income. This swells to £1,630 if they only start contributing at 35.

Naturally, delaying the age at which one wishes to retire eases the burden and gives more breathing room and most don’t retire until the state pension age (SPA), or after.

The UK state pension age is currently 66 but will rise to 67 by 2028.

Accounting for a retirement age of 65, a 25-year-old would need to save £784 per month to give them an annual income of £31,000. This rises to £1,165 if they start at 35.

Research conducted by Which? Showed that most couples need an £18,000 yearly income just to cover household essentials such as food, utilities, transport and housing costs.

This increased to £26,000 a year when allowing for luxuries like a holiday and leisure activities.

Ms Williams added: “Even if it doesn’t feel like you’re putting much away initially, the sooner you start, the better.

“It’s also important to remember that contributing to your workplace pension means you’ll benefit from employer contributions – effectively meaning your company is covering some of that monthly contribution. And if you can put more away when you get a pay rise or make additional one-off payments, your future self will be very grateful.”

She concluded: “As well as regular saving, contributing a lump sum from a bonus or other savings pot can make a real difference over the years.”

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