‘Not a king’s ransom!’ What sum you need to save and when to become a pension millionaire

Martin Lewis lays out the two types of pensions

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Reaching £1million may seem like a challenge in retirement, but the goal may be possible for diligent savers. Many, however, will want to know when they should be embarking upon this journey to achieve success.

For a 25-year-old, it means saving £765 per month or approximately £9,180 per year to ultimately reach the £1million goal.

If the individual received basic rate tax relief on all of that cost, it would be £612 per month.

However, in reality, many Britons of this age may also be on higher rate relief on much of their earnings – which will bring down the amount they need to save.

Employers will also be making contributions through auto-enrolment, or other schemes to help boost pension saving.

If the employer were to pay half of the cost, this would work out as £382 per month, leaving the individual needing to pay £306 per month if on basic rate tax relief. 

This could be a reasonable amount to put aside for someone on a fairly high salary, but perhaps not possible until later down the line for those on low or average earnings. 

Starting at the age of 30 means individuals have to step up their savings to roughly £11,769 in the year in order to reach the £1million goal by retirement age.

It would mean saving approximately £980 per month, but once again, tax relief and employers contributions can factor in to this figure.

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Leaving saving just 10 years later at 40 means Britons will have to make a concerted effort to get to the £1million mark.

It could mean saving £20,422 in the year – an estimated £1,701 per month.

The figures show the power of compound interest, which could see pension pots snowball over longer periods of time.

All figures presume a four percent investment return, net of all charges. 

Andrew Tully, technical director at Canada Life, who compiled the data, spoke exclusively to Express.co.uk about the data.

He said: “£1million sounds a lot of money to be building up.

“But when you consider it may need to to sustain you through 25 or 30 years in retirement, that equates to £30,000 to £40,000 a year.

“While that is a good income, it isn’t a king’s ransom and is an amount many people would aspire to.

“However, the key for younger people is to save what they can afford and, most importantly, take advantage of any employer contribution.

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“Saving money early allows the magic of compound interest to work over time, and that can achieve much more than trying to catch up later.”

Mr Tully also suggested the matters younger savers should be considering.

He said individuals may wish to consider a more “adventurous” investment selection.

This is because these individuals will be able to ride the peaks and troughs of the market over a longer period of time.

Mr Tully added: “A pension is a really long-term investment and there is plenty time to recover from any brief market downturns.

“These can even provide good opportunities for making new contributions.”

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