The top reason financial advisers gave for this problem was customers not being able to afford to save enough. The next most popular reason, with over a quarter of votes, was that customers were leaving it too late before they started their pension.

 Starting a pension early has a significant impact on the pension fund accrued for retirement. This is demonstrated in the table below:

If someone starts their pension age 25, and invest £201 per month (increasing yearly in line with Average Earnings Index (AWE)), they could accumulate a pension fund of £594,000 at age 65, which could give them a pension income of £37,719 p.a. However, a delay of just 10 years could half the pension fund at retirement, and pension income could fall to £17,717 p.a. A delay of 20 years could reduce the pension fund by a massive 80% at retirement, and pension income could fall to just £7,366 p.a.

A person can off course pay in extra to make up for the delay in starting their pension, but as the figures show, the increase needed is startling. A delay of 10 years could mean a monthly investment of £201p.m needs to increase to £421p.m straight away to achieve the equivalent pension fund at retirement. With a delay of 20 years, this grows to a staggering £1,000p.m, which is an increase of 500%!

Adrian Walker, Skandia’s pension expert, comments:

“Delaying investment into a pension can have a dramatic effect.  Starting a pension aged 25 could result in a substantially higher income in retirement then starting a pension aged 45. Using the numbers above, the difference could be as great as £550 per week better off.

“Unfortunately, the reality is that saving for retirement is often the last thing on a persons mind when they are in their 20’s or even 30’s, when their priority is saving for a property or bringing up children. It is often not until a person is in their 40’s and 50’s, when they may have more disposable income, that the need to save for retirement becomes a closer reality.  However, by that time, the amount they need to save is significantly higher in comparison, and not saving enough can become a daunting and worrying prospect.

“Even if someone cannot afford to save very much, the compound effect of starting to invest at a younger age can make a big difference. Not only is it a good habit to foster, but they can also get tax relief on contributions at either 20%, 40% or even 50%, depending on their personal rate of tax. With the projected start of auto-enrolment due to be passed in from October next year there will be an increasing opportunity to invest in a pension arrangement supported by contributions that an employer must make. At the very least younger employees should take up this opportunity to benefit from the employer contributions they would otherwise lose out on.

“Due to the complex nature of pensions, it is a good idea to seek financial advice from a professional, who will be able to advise on the amount needed to save in order to reach desired goals in retirement.” 

*Skandia’s Q3 adviser barometer survey, 876 responses,16 September 2011

Footnotes to support the assumptions made in the data:

-The investment amount of £201p.m is based on an average premium contribution
-Median weekly earnings = £498.8 = £25,937 p.a. source: Office for National Statistics
-Average employee contribution to a DC is 2.9% and average employer is 6.4%, source: Office for National Statistics
-2.9 + 6.4 = 9.3%
-9.3% of £25,937 = £2,412p.a.
-£2,412p.a.= £201 p.m gross contribution to pension
-The contribution amount increases yearly in line with the Average Weekly Earnings (AWE) Index

-The growth rate is based on 7% growth p.a.

-The pension income is based on an annuity rate for a male, age 65, level with no guarantees, current rate available is 6.35%, source: http://tables.moneyadviceservice.org.uk/ 11/10/2011