Let’s break it down by age: what contributions do you need to make at various ages to reach a million-pound pension?
The calculations below show that a 30-year old who wants to retire at 65 with a £1m pension pot could achieve this by saving £778 a month gross, assuming their monthly contributions increase in line with price inflation at 2.5% p.a.
If your contributions remained level, you would need to save £1,108 a month gross to reach the same target.
However, it gets more difficult with age.
Wait until 45 to start saving into a pension and you would need to save £2,215 a month (if contributions increase) or £2,740 a month (assuming level contributions) to achieve the same objective.
As you can see, even delaying starting a pension by a few years can have a dramatic effect on the size of your pension pot and the retirement income that you are able to draw from it. The earlier you start saving the better.
For ease of reading, we have split gross contributions and how it nets out after tax into two tables.
We’ll go into more detail on the reasons why these are different after the numbers - but they could have big impacts on your saving.
*Figures assume a yearly investment growth of 4%, after charges, and inflation of 2.5% a year. These figures are illustrative and you may have to contribute more than this. You should remember that the value of investments can fall and you may get back less than you invested.
Why are net and gross contributions so different?
When paying into your pension, you receive tax relief on personal contributions that you make.
This is defined by the highest rate of income tax that you pay, provided that certain conditions are met.
If you are a basic-rate taxpayer and were to contribute £100 (gross contribution) into your pension, it would actually cost you £80 (net contribution).
Your pension provider will claim the difference as tax relief (20% basic rate tax relief) and add it to your pension pot. Higher rate tax relief (above 20%), can be claimed by completing an annual self-assessment form provided by HMRC.
As you can see, whatever your retirement goal, reaching it will be much easier if you establish a plan and start saving towards it as early as possible.
To find out more about how Brewin Dolphin can help you answer these questions, request a callback today.
The value of investments and any income from them can fall and you may get back less than you invested.
Past performance is not a guide to future performance.
No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
The opinions expressed in this publication are not necessarily the views held throughout Brewin Dolphin Ltd