Save an extra £188,000 in your pension by avoiding this mistake

Workers have been warned that if they do not start to contribute to their pensions from an early age they could potentially miss out on £188,000.

A study from Standard Life looked looked at four scenarios to determine how much money a person could save over different time periods.

The pensions company claimed that if you were to consistently save from the age of 22, with a starting salary of £25,000, you would be on target to accumulate £435,000 in a pension pot by the age of 66. 

By contrast, if someone only started saving from age 40 to 66, even after starting at a higher salary of £46,500 the worker would only end up with £247,000 in their pot – missing out on a staggering £188,000. 

The study assumes a 3.5 per cent salary growth per year and current standard auto-enrolment contributions, which is 3 per cent from the employee and 5 per cent from the employer.

This shows how it pays to start contributing to your pension at the earliest age possible and benefit from extra years of contributions, tax relief and compounded investment returns.

The study did not into account inflation and growth is an estimate.

Standard Life Managing Director For Customer, Dean Butler, said: ‘It’s never too late to start saving and these figures illustrate that even over fifteen years, people can accumulate significant sums in their pension which benefit from employer contributions and tax relief.

‘That said, what stands out is that the earlier you start, the greater your options.

‘Over the years the combination of contributions and compound investment growth can really add up.

‘If you are going to start saving later then it’s important to think carefully about contributions and what the standard auto-enrolment levels will generate in retirement.’

> How pensions work: Your essential guide to retirement saving 

Early retirement could eat your pot at the other end 

Standard Life’s analysis also looked at two more scenarios involving those who retire early at the current minimum pension age of 55.

Stopping saving earlier diminishes the eventual amount in their pot – and the statistics highlighted the damage of starting and finishing early. 

Those who saved from age 22 to 55 could generate a fund of £218,000, whereas those who started at 40 years old and finished at 55 could have £95,300.

This study comes as Phoenix Insights, the longevity think tank from Phoenix Group, found that workers aged over 45 in Greater London and the East of England have over 40 per cent more in retirement savings on average compared with those in the Midlands and the North.

The total savings in those regions average less than £98,000 – far below the £248,000 the Pensions and Lifetime Savings Association estimate that is needed for a moderate standard of living in retirement.