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Delaying pension payments a costly business

Delaying pension payments a costly business

Category: Pensions

Updated: 30/09/2009
First Published: 30/09/2009

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Workers who choose not to start building up a pension pot until they reach middle age are risking a significant shortfall when they retire.

Britons keen to build up a retirement nest egg equivalent to two thirds salary who do not start contributing until aged 40 will need to save 33 per cent of their wage until aged 65.

On the average salary of £26,020, a 40 year old beginning a pension would need to save £23.94 a day, or £728.06 a month, from combined employee and employer contributions.

Employees have been advised by Prudential, which conducted the study, to start saving much earlier to ease the monthly pension payments.

Starting a defined contribution scheme at 18, a worker would have to put aside just 12.9 per cent of the average wage a day to build up a retirement fund that equates to an income of £17,347, which is two thirds average UK salary.

Savers have been warned that current levels of pension savings – just £3.56 a day – will prove to be insufficient come retirement.

"With the basic state pension currently paying out less than £5,000 a year, it is critical that people get themselves out of the mindset that they will be able to rely solely on the state to look after them financially in their retirement," said Martyn Bogira, director of defined contribution solutions at Prudential.

"There is a shifting onus on workers to begin budgeting a more realistic amount which can be paid into a pension, especially if they want to improve their chance of being able to enjoy a reasonable quality of life when they do come to retire."

A study carried out late last year found that 22 per cent of people planning to retire this year said they had no pension savings and expected to rely on the state and other savings.

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