As thousands of graduates prepare to enter the workforce this September, new analysis from Standard Life reveals how a small pension top up – just £21 a month from age 22, assuming a starting salary of £25,000 – could grow into a £26,000 boost to their retirement pot.
Around one million people achieve higher education qualifications in the UK each year, and with exams over and graduation ceremonies done, many will be starting work for the first time this September and will be auto-enrolled into a workplace pension scheme.
Among those who have graduated from university in the last five years, 89% say that pension planning is important to them. However, understandably, shorter term financial matters are more of a priority at this stage, with less than one in five (18%) stating that saving for retirement is a top concern. Instead, recent graduates are more likely to prioritise general saving (40%) and investing (35%), day to day living expenses (35%) and saving for a house (28%).
Boosting pension contributions from an early age can pay off
While putting extra money away for retirement isn’t going to be top of the priority list for recent graduates when they have several financial priorities to contend with, those who are able to save a bit more into their pension once they start working could find themselves better off in future.
Standard Life’s analysis shows that someone who began working on a salary of £25,000 per year, paying the minimum monthly auto-enrolment contributions (5% employee, 3% employer) from the age of 22, could have a total retirement fund of £210,000 by the age of 68, adjusted for inflation.
However, if they were to increase their monthly contributions by just 1% (from £104 to £125 a month) from the age of 22, they could accumulate £236,000 by the age of 68 – £26,000 more than standard contributions might achieve.
Dean Butler, managing director for retail direct at Standard Life, commented: “Graduates have a lot to juggle as they take their first steps into working life, from rent and bills to saving for a home. Therefore, while most recent university leavers are conscious of the importance of pension planning, it’s understandable that other financial concerns take priority and that saving for retirement is not top of mind when only just starting on the career ladder.
“However, for those able to do so, sacrificing a round of drinks, a gym class or a takeaway each month and putting those savings into a pension can make a notable difference over time. Topping up pension contributions from the start of a career could be hugely valuable, as your pension will benefit from tax relief, and from the power of long-term investment growth.”
