The power of small changes can lead to a path to significant returns
The dream of early retirement is alive and well among the younger generation. Still, to realise this dream, they must prepare to bolster their pension savings by an estimated 15%. A recent study has revealed that approximately one-fifth (17%) of youthful savers aged between 22 and 32 aspire to retire before reaching 60. Intriguingly, 70% anticipate retiring before the present State Pension age of 67[1].
This aspiration for early retirement among the young generation is commendable. Nevertheless, the research highlights that these savers must supplement their regular 8% contributions towards their workplace pensions by an additional £312 per month to realise this dream[2]. This translates to an extra 14.25% of their monthly income towards a workplace pension.

Taking a closer look at the current State Pension age
Even if the goal is to retire by the current State Pension age of 67, young savers still need to augment their workplace pension contributions by another 3.5%. This equates to an additional £72.50 per month, even after accounting for an annual State Pension boost of £10,600 upon retirement[3].
While setting aside an extra £312 each month may seem daunting for most young savers, it’s essential to recognise the potential impact of compound growth. Even minor adjustments early in one’s career can dramatically influence the overall retirement fund. The research highlighted that an extra contribution of just £30 per month from the age of 27 could result in an additional £100,000 in one’s pension pot by the time one reaches the State Pension age.
The greater the potential for growth
Time is indeed the most powerful asset at the disposal of young savers when planning for retirement. The principle of compound interest works in their favour, allowing their savings to grow exponentially. The longer the time frame, the greater the growth potential, making early investment a crucial strategy in accumulating substantial retirement funds.
While retiring before age 60 may be attractive, it might not be a practical or attainable goal for everyone. Factors such as current income, financial obligations and lifestyle choices can significantly impact the feasibility of this goal. However, this doesn’t mean a comfortable retirement is out of reach. Even small financial adjustments early in one’s career can significantly impact retirement comfort. This could involve investing in a diversified portfolio, increasing contributions to retirement accounts or adopting a more frugal lifestyle to increase savings.
Removing the burden of decision-making
Introducing auto-enrolment schemes has been a significant milestone in promoting retirement savings. These schemes automatically enrol employees into pension plans, removing the burden of decision-making and making it easier for individuals to start saving. This approach has encouraged millions to build their nest eggs for retirement.
However, while auto-enrolment schemes have successfully got people to start saving, it’s worth considering whether further changes are necessary to ensure that individuals have enough funds for a comfortable retirement. The default contribution rates set by these schemes may only be adequate for some, particularly when considering the rising living costs and the impact of inflation. Therefore, individuals may need to contemplate increasing their contributions or exploring other investment opportunities to secure a sufficient retirement income.
Source data:
[1] Opinium Research conducted 2,000 online interviews of people aged 22-32 between the 15th and 29th August 2023.[2] Analysis based on the following research and assumptions: CPI = 3%, Salary assumed to increase with CPI inflation +1%, LEL and UEL in place and assumed to increase with CPI inflation, Median male salary at age 27 = 35,000, Median female salary at age 27 = 25,000, Investment return on pension pot, assuming broad 60/40 asset split, (7% p.a.), Assume basic rate taxpayer, and personal tax allowance of £12,570, increasing with CPI inflation, Based on single life, RPI, 5-year GMPP.[3] State pension of £10,600pa, escalating with CPI inflation.
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