To achieve this level, a couple who shared costs and each received the full new state pension would need to accumulate a retirement pot of £328,000 each if they turned their savings into an income by buying an annuity, the PLSA said.
Bear in mind that this is in today’s figures and the impact of inflation means future retirees will need much more. In short, you’re going to need to save hard.
It pays to make a contribution boost in your mid-30s
If you do decide to top up your pension contributions at 36, just how big a difference will it actually make? We got Hargreaves Lansdown to do the calculations.
Let’s take the example of Joe Bloggs, who began working full-time with a salary of £25,000 a year and who made the minimum auto-enrolment contributions of 8pc (5pc employee, 3pc employer) from age 22 into a workplace pension.
He could end up with a pot of around £500,000 by the time he turns 68. This assumes 5pc annual investment growth, 3.5pc salary growth per year and annual investment costs of 1pc.
Figures are not reduced to take inflation into account. If, however, Mr Bloggs increased his contributions by 3 percentage points to 11pc from the age of 36, this could give him a much healthier pot of £630,000 by the age of 68 – meaning he ends up with £130,000 more.
Ms Morrissey said: “This demonstrates that increasing pension saving in your 30s could give your pension pot a decent boost when you stop working, helping you achieve that ‘comfortable’ retirement.”
Don’t forget the power of compound interest
It’s also important to remember that early pension savings are very powerful because they benefit from compounded returns.
Gary Smith from the wealth manager Evelyn Partners said: “These ‘returns on returns’ can exponentially increase a pension pot through the decades to come. With this in mind, with more than 30 years to go to state pension age, 36 is a reasonable age to start thinking more seriously about pension savings.”
But he acknowledged that there might be many financial demands on workers in their 30s.
“Things such as housing, travel and childcare, on top of rising living costs, are likely to drain much available income. For many, these costs will make it difficult to bump up pension contributions above the 8pc auto-enrolment minimum,” he said.
What if you can’t top up until later in life?
The good news is that even if you can’t increase the amount you pay in until you reach 40, or even 50, all is not lost.
Ms Morrissey said: “Life can get in the way, bringing unexpected expenses with it. It’s important not to worry if you haven’t been able to boost your contributions yet.
“It’s never too late to make a difference. Increasing your contributions whenever you can will have an impact on how much you end up with in retirement.”
If you wait until 40 to boost contributions
If our hypothetical saver Joe Bloggs had been making the minimum 8pc auto-enrolment contributions until 40 and then boosted them by 3 percentage points to 11pc, he would end up with £609,000 by age 68. If he increased the boost to 4 percentage points at 40, it would give him £645,000.
If you wait until 45 to boost contributions
If Mr Bloggs were able to increase his contributions by 3 percentage points when he turned 45, this would leave him with £588,000 at 68. If he raised the uplift to 4 percentage points, he would get £617,000.
If you wait until 50 to boost contributions
Even if Mr Bloggs waited until 50, a 3 percentage point boost would leave him with £568,000 and a 4 percentage point boost would get him £590,000.
It’s never too late
All this demonstrates that for those in a position to do so, proactively topping up contributions, or making one-off payments, could prove to be a valuable gift to your future self.
Make use of tools
If you want to find out more about the impact of increased pension contributions, it’s worth checking out online calculators. These tools can also help you see how much income you could receive via an annuity or income drawdown when you retire.
Your workplace pension provider or Sipp company will usually have such tools available.
