• Starting pension contributions at 22 years old could mean £65,000 more in retirement than starting aged 27
  • Ahead of this year’s Pensions Engagement Season, running through September and October, Standard Life calculations highlight the benefits of compound interest and the long-term impact of waiting to contribute to your pension
  • Those grappling with decisions over near term and longer-term financial priorities should strike a balance when it comes to financial commitments, if possible

As this year’s Pensions Engagement Season approaches retirement savings are not likely to be top of every young person’s priority list, particularly with inflation still way above the Bank of England’s target and interest rates rising. However, new analysis from Standard Life, part of Phoenix Group, highlights the trade-offs when it comes to balancing near and longer-term financial priorities.

The longer you wait to start contributing to your pensions, the more you could miss out on in future

Standard Life’s analysis finds that those who begin working on a salary of £25,000 per year and pay the minimum monthly auto-enrolment contributions (5% employee, 3% employer) from the age of 22, could have a total retirement fund of £520,000 by the age of 68, not adjusted for inflation. However, waiting just five years to start contributing to a pension, beginning payments at the age of 27, could result in a total pot of £455,000 – £65,000 less. As the potential power of compound investment growth builds up as the pot grows, waiting even longer could have an even bigger impact on finances in retirement:

Total retirement fund at age of 68*
Started saving for retirement at 22 years old Started saving for retirement at 27 years old Started saving for retirement at 32 years old Started saving for retirement at 37 years old Started saving for retirement at 42 years old Started saving for retirement at 47 years old
£520,000 £455,000 £392,000 £332,000 £273,000 £217,000
  -£65,000 -£128,000 -£118,000 -£247,000 -£303,000

*if beginning working with a salary of £25,000 per year and paying 5% employer, 3% employee monthly contributions into a workplace pension and assuming 5.0% investment growth and 3.5% salary growth per year. Figures are not reduced to take effect of inflation. Annual Management Charge of 0.75% assumed. The figures are an illustration and are not guaranteed. Earning limits not applied.

The key difference is that those paying into their pension only later in life could miss out on years of compound investment growth – or further investment growth on earlier growth. By starting a pension earlier in life and leaving it to build up, compound investment growth could build each year, meaning those who start saving later on may not benefit to the same extent. Of course, putting money away today means there is less of it to meet near term costs, but these figures are intended to highlight the challenge that delaying saving for a number of years can create in the long run.

Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “It’s amazing to see how just a five-year delay in saving in your 20s can reduce the pension you retire on by tens of thousands of pounds. With the current financial squeeze, it can be tempting to put off thinking about your long-term financial future and focus purely on the short term.

“However, as our analysis shows, if your finances permit and it’s appropriate for your circumstances, the sooner you engage with and begin to contribute to your pension the better your ultimate retirement outcome could be. Our calculations show that contributing to your pension from as early an age as possible means the impact of compound investment growth is much more significant and could result in a much larger retirement pot. For those in a position to do so, consistently paying into a pension from as early an age as possible and topping up payments, especially in your 20s, 30s or early 40s, can make a massive difference over time. The longer you wait to start the worse off you could be by the time you stop working, so if you’re able to save into a pension your future self is likely to thank you for it.”

Standard Life offers tips to maximise pensions savings:

  1. Make sure you’re taking advantage of all the benefits of your pension plan and your employer offers. If your employer offers a matching scheme, where if you pay additional contributions your employer will match them, consider paying in the maximum amount your employer will match to get the most out of it.
  2. Getting a bonus? Deciding to pay some or all of your bonus into your pension plan could save you paying some big tax and national insurance deductions. Meaning you could keep more of it in the long run, and it could be a great way to give your pension savings a boost.
  3. Even a small amount could make a big difference in the long term, especially if you’re starting young. If you’re able to, think about paying a little more into your pension when you get a pay rise or have a little extra in savings to spare.



Sarah Muir
07870 397537

James Merrick
Standard Life
07974 063067

Notes to editors:

1 - Calculations assume the following:

Starting Salary £25,000
Starting Age 22
Employer Contribution 3.00%
Employee Contribution 5.00%
Investment Growth 5.00%
Salary Growth 3.50%
Annual Investment Cost 0.75%

2 - Calculations are intended only for the sole purpose of providing an illustration regarding the projection of savings and pensions. They should not be used with the intention to give an accurate representation of real-world outcomes.

About Standard Life

Standard Life is a brand that has been trusted to look after peoples’ life savings for nearly 200 years.
Today it proudly serves millions of customers who come to Standard Life directly, through advisers and through their employers’ pension scheme.
Standard Life is part of Phoenix Group, the largest long-term savings and retirement business in the UK. We’re proud to be building on nearly 200 years of Standard Life heritage together.
Our products include a variety of Pensions, Bonds and Retirement options to suit people’s needs, helping our customers to invest and save for their future. We’re proud to offer a leading range of sustainable and responsible investment options.
We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs and plan a future they feel confident about.
The value of investments can go down as well as up and may be worth less than originally invested.

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