We have said it before, but it’s never too early to start planning your retirement – research released this week has shown those who save into a pension in later life will be significantly worse off, despite earning a higher salary.
Analysis by Standard Life found those who started pension savings between the ages of 40 and 66 were likely to be almost £200,000 worse off than younger starters.
The numbers showed those who committed early to pension savings had more options available when it came to deciding when to retire, with the potential power of the growth of their investments.
The study looked at the ‘long-term saver’, saving from ages 22 to 66 on a starting salary of £25,000; the ‘early start, early finisher’, saving from 22-55 on a starting salary of £25,000; the ‘late start, early finisher’, saving from 40-55 at £46,500; and the ‘catch up saver’, saving from 40-66 at £46,500.
It found the long-term cohort could amass as much as £435,000 by the time they reached 66 (not taking into account inflation, which of course will affect the real value of your pound). This method assumed a 3.5% salary growth per year and the standard contributions of 3% by employee and 5% by employer.
By contrast, the ‘catch up saver’ would only accumulate £247,000, despite a higher salary and would need to make far higher pension contributions, calculated at 14% by the study, to catch the early starters.
The analysis also found that for those who chose to retire early, the difference in pension payouts between the ‘early start, early finisher’ and ‘late start, early finisher’ would be £218,000 and £95,300 respectively.
These are arbitrary numbers and it’s fair to say peoples’ lifetime working income is unlikely to follow such a straight path and assumes 3.5% annual salary growth (for example), but nonetheless it demonstrates the importance of saving for a pension as soon as possible.
It is never too late to start, so if you want an overview of your pension prospects, are considering adding to your contributions or perhaps taking out a personal pension too, please do seek independent financial advice. Every situation is different and people have different aspirations, so it is important to form a good plan with your adviser.
Mortgages update
Following our article last week regarding the increase in interest rates to 5%, it has been reported that 85% of mortgage lenders and the FCA (Financial Conduct Authority) have signed up to the Government’s Mortgage Charter.
This includes an agreement borrowers will not see their home repossessed ‘unless in exceptional circumstances’ in less than a year from their first missed payment.
Other measures include: Anyone worried about mortgage payments can ask their lender for help and guidance without it affecting their credit score; customers who are up-to-date with payments can switch to a new fixed rate deal at the end of their existing deal without an affordability check; plus lenders will provide advice in advance of deals coming to an end.
Those approaching the end of a fixed rate deal will have the chance to lock in a deal up to six months ahead. Lenders also agreed customers who are up to date with payments could switch to interest-only payments for six months, or extend the mortgage term to reduce monthly payments and have the option to revert to their original term within six months.
