Boost your pension by £416,186!

Delaying starting your pension can have a significant impact on your income in retirement.

For many of us, retirement feels like it could be a long way off. However, the earlier we think about it (even if it feels like it’s never going to happen), the more comfortable our retirement is likely to be.

Unfortunately, most of us can’t rely entirely on the state to help us out in retirement, and that means the responsibility of saving up for your retirement belongs to you!

According to a Defaqto survey, however, 20% of people are not saving for later life at all. What’s more, research from Prudential shows that the average retirement income is falling. In 2010, it was 7% down on 2009, at £16,509, and 11.5% down on 2008’s figure of £18,663. All the while, the cost of living continues to rise!

While putting a little money aside for your retirement can be a struggle in tough times like these, it really is important if you want to retire comfortably.

Delaying your pension in any way can seriously affect how much money you have when you come to retire. Not only that, but simply increasing how much you pay in every month – even by just £50 – can make a significant difference, as I am about to reveal.

Age matters

The table below shows how much money you could lose out on if you decide to delay starting your pension for a few years (figures are based on an individual paying in £100 a month):

Age at start of pension	Projected fund at retirement	Difference (compared to starting at age 22)
22	£109,724	-
25	£96,267	£13,457
30	£76,534	£33,190
35	£59,731	£49,993
40	£45,420	£64,304

Projections based on 6% net investment growth, retirement age 65, contributions increasing by 2.5% a year. Projected values are in real terms ie. have been discounted to reflect the impact of inflation (2.5%).

Source: Hargreaves Lansdown

You can see that delaying starting your pension by just three years – starting aged 25 instead of 22 - can make quite a difference - £13,457 to be precise.

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What’s more, if you were to delay starting your pension until you were 35, you’d lose out on a massive £49,993! Ouch.

Pensions need time to grow, and thanks to the miracle of compounding, the earlier you start your pension, the longer your investment will have time to do this. And this means your pension pot will be even bigger when you come to retire!

But it’s not just when you start your pension that matters. How much you pay into your pension each month can also have a significant impact on how much you’ll have in your pension pot when you retire.

Give your pension a boost

The table below shows what your pension pot size would be like if you contributed £50, £100, £200 or £400 a month – and what a difference paying just a little more a month can make.

Starting age	£50 a month	£100 a month	£200 a month	£400 a month
22	£54,862	£109,724	£219,448	£438,896
25	£48,133	£96,267	£192,535	£385,070
30	£38,267	£76,534	£153,069	£306,139
35	£29,865	£59,731	£119,462	£238,925
40	£22,710	£45,420	£90,840	£181,681

Source: Hargreaves Lansdown

As you can see, someone starting his/her pension at the age of 30 and only contributing £50 a month would have £38,267 in his/her pension pot. But by boosting his/her contribution by £50 to £100 a month, the size of the pension pot would increase to £76,534 – so considerably more. And if he/she increased the contribution again to £200 a month, the fund size would rise to £153,069!

Taking it to extremes, if you compare the fund size of an individual who started his/her pension at the age of 22 and paid in £400 a month, to someone who started at 40 and paid in only £50 a month, the difference in fund size is a whopping £416,186! As I said, this is taking it to the extreme, but it still highlights just what a difference starting your pension earlier and paying in more can make.

Find out why it’s crucial to keep your pension contributions up even when money is tight

So overall, the earlier you start your pension and the more you can invest, the far better off you will be in retirement.

If you’re not sure how you’ll afford to put a little extra into your pension each month, make sure you take a look at our tips on budgeting. It’s also worth having a read of 12 ways to make quick easy cash and checking out our guide on how to make some extra money for tips on boosting your income.

If you’re looking for further ways to boost your pension, read 10 ways to boost your pension.

Don’t forget

Finally, don’t forget that your pension is one of the few things in life that allows you to enjoy tax relief. If you’re a non-taxpayer or basic rate taxpayer, you’ll benefit from tax relief of 20%. So for every £80 you pay into your pension, this will be increased to £100. And if you’re a higher rate taxpayer, you can claim back 40% of tax relief – so every £60 will be increased to £100.

This is an opportunity not to be missed!

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