Retiring just two years after the future minimum pension age of 57 could mean an extra £22,000 in pension pots while waiting until age 66 could mean an additional £140,000, according to analysis Standard Life.
The typical monthly auto-enrolment payments starting at the age of 22 would allow someone earning £25,000 per year to accumulate a total retirement fund of £171,000 by the time they reach the age of 55, the figures showed. The total sum would be £193,000 – £22,000 if one retired two years later, at the anticipated regular minimum pension age of 57.
According to the company, early retirement will prevent people from reaping the rewards of ongoing compound interest, which can have a significant influence at the conclusion of your career. Compound interest will also rise annually as a result of gradual pension building and growth.
Additionally, a few more years could buy time for savers whose pots have been affected by recent market volatility and who may be concerned about the rising cost of retirement during a time of high inflation. In fact, those who continue making pension contributions up until age 66 may contribute a further £140,000, bringing their total pension pot to £311,000.
Standard Life managing director for customer savings and investments Jenny Holt said: “Leaving your pension pot untouched towards the end of your career can significantly increase the total amount you retire on by tens of thousands of pounds. This is largely due to the power of compound interest, which gradually builds over time.
“In five years’ time, people will not be able to withdraw from their pension until they reach age of 57, and this extra two years of accumulation should be beneficial to many, especially as retirement funds are going to be expected to stretch further than before, as people tend to live longer and are spending more time in retirement.
“For those in a position to do so, consistently paying into a pension from as early an age as possible can make a massive difference over time, and as our analysis shows, the biggest impact can happen towards the end of your working life. This is something worth being aware of and factoring into your decisions as you approach retirement and start to consider stopping work – as that period can potentially influence your eventual retirement lifestyle too.
“Clearly, nobody can put a price on quality time in retirement – so it’s worth having a think about the type of lifestyle you’d like when you do retire and use that as a basis when deciding if the delay is worth it. The Retirement Living Standards tool from the Pensions and Lifetime Savings Association is a great place to start, clearly showing what life in retirement looks like at three different levels – minimum, moderate and comfortable. As well as everyday costs, the tool factors in what’s needed for extras – gifts, holidays and large purchases etc, alongside the one-off expenses that come up through life.