Pensioners could miss out adding a whopping £100,000 to their pension pot, it has been warned.
State pensioners who’ve been in work ‘for 40 years’ could have £100,000 wiped from pot
State pensioners face a £100,000 cut to their pension if they make one mistake. Pensioners could miss out adding a whopping £100,000 to their pension pot, it has been warned.
For a typical person, not taking advantage of extra contributions of 1% of their salary for 40 years could result in up to £100k loss. According to research by the Institute and Faculty of Actuaries (IFoA): “For an individual it is very easy to forget, or delay thinking about pensions and sometimes that is the best thing to do.
“The strength of auto-enrolment and default investment strategies is that they are designed to help a pension pot build up without any action. However, there will be a few key moments in an individual’s life when mistakes can leave them with far less pension than they may ultimately need.
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“It is important to recognise that individuals’ decisions about pensions do not occur in a vacuum. The choice for many relying on auto-enrolment is not between ‘do I pay more into my pension or not’, but between ‘do I pay into my pension or save for a house deposit’ or ‘do I pay more into my pension or meet my current household needs or debt or pay off my student loans’.
“This becomes a more complicated picture when we consider life circumstances such as age, location and marital status, and other associated costs like the cost of health, childcare and social care.
“The IFoA wants to encourage individuals to prioritise their pension where they can and illustrate how decision-making over the shorter-term can have a drastic impact on final pension amounts over the longer-term.”
Ir adds: “It’s a simple fact that the biggest pension mistakes an individual can make is to never start one.
“As mentioned above, not all workers in the UK are eligible for AE and for workers such as those that are self-employed, they must set up their own pension.
“If an individual does not prioritise their pension (for example because they are concerned about cashflow, or it never makes its way to the top of the “to-do” list) they will miss out on tax relief and the miracle of compound interest (which Einstein described as the 8th wonder of the world).
“Never starting a pension could mean that an individual ends up working far longer than they would like. For the average person, starting a pension at 35 instead of 25 could mean their pot is only £500k at retirement instead of £800k.
“Early contributions have a huge impact. It is worth noting that as of March 2024, there are 4.25 million self-employed people in the UK who do not readily have access to automatic enrolment.
“Further policy interventions are required to support this segment of the working population.”