The Power of Starting Saving Early

Published / Last Updated on 20/04/2021

For many years, we have talked and offered examples on this website about why people should start saving as early as possible as the compounded effect of saving lower amounts earlier on has dramatic effects on the amounts you can build up towards education fees, house deposits, cash reserves and pension funds.

We won’t let up and this week we have looked at the power of starting savings in a pension for a new born baby versus 20, 30, 40 and 50 year olds all savings towards a similar goal.

We start by looking at setting up a pension for a new born baby child or grandchild.  By saving just £100 pm net (£125pm gross with tax relief – yes, even a baby will get tax relief for pension payments) and increasing with inflation each year, this is projected to build up a pension fund of over £466,600 by age 65.  When you compare to this to starting in your 20s or 30s, there is a dramatic difference of having to double up or quadrupling up payments to achieve the same fund and it gets even worse if you leave it until your 40s or 50s.

Age Today

No.  Monthly Payments

No.  Years to 65

Monthly Gross

Monthly Net

Fund At 65

0

780

65

£125.00

£100.00

£466,611.63

20

540

45

£308.53

£246.82

£466,604.21

30

420

35

£509.94

£407.95

£466,609.76

40

300

25

£906.70

£725.36

£466,611.29

50

180

15

£1,895.06

£1,516.05

£466,611.40

Assumptions:  Basic rate rax relief of 20.00% added to pension contributions and applied at source.  FCA pensions mid rate growth of 5.00 % pa less annual management charge of 1.00 % pa, both applied/deducted monthly.  Annuity rate of 5.00 %.  Inflation (CPI) at 2.50 % pa.  The value of funds, rates and investment returns can fall as well as rise and are not guaranteed so you could get back less than you invest.  Taxation, tax relief rates and law are subject to change.

Start saving as soon as you can for yourself or even your children and grandchildren.

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