Standard Life: How to buy more days of retirement

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Recognise the trade-offs that come with early retirement

• Standard Life analysis shows how increasing your pension contributions by 2% could give you the option of retiring three years early
• Those who retire earlier will need to make savings last longer or consider alternatives like phasing into retirement

Some employers provide the option of buying extra days of holiday each year as part of a benefits package, but for those looking for the potential of additional years rather than days, a pension may provide the answer. Topping up pension contributions by just 2% over the course of a career could enable you to retire three years earlier, with nearly £20,000 more in your pot, compared to saving the minimum auto-enrolment rates new analysis from Standard Life, part of Phoenix Group reveals.

The analysis demonstrates the long-term impact that changing pension contributions can have on retirement outcomes. For example, someone that began working full-time with a salary of £25,000 per year and paid the minimum auto-enrolment contributions (3% employee, 5% employer) from the age of 22, could amass a total retirement fund of £434,000, not adjusted for inflation, at the age of 66* – the current state pension age.

However, if they were to increase their monthly contributions by 2% (7% employee, 3% employer) from the age of 22, they could amass a larger fund value (£453,000) by age 63 – gaining £19,000 and the option to retire three years earlier.

*assuming 3.50% salary growth per year, and 5% a year investment growth. Figures are not reduced to take effect of inflation. Annual Management Charge of 1% assumed. The figures are an illustration and are not guaranteed. Earning limits not applied.

Planning for a longer retirement

The challenge of contributing more and retiring earlier comes with a trade-off however and people choosing to retire earlier might need to make similar retirement pots last longer and spread their savings over more years.

For those looking to maintain a higher income in retirement, the figures show that paying in an additional 2% into your pension over the course of your career right up to the current state pension age would generate a pension pot of £597,000 or £163,000 more than based on standard contributions.

Another possibility is to consider a gradual approach to retirement, rather than stopping work entirely. Standard Life’s Retirement Voice¹ research found that people have different definitions of retirement, with 52% of people thinking of it as something more gradual than stopping paid work altogether. It’s also important to remember that even after retirement, money left in a pension pot can continue to benefit from investment growth, potentially helping to support a longer retirement.

Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: There’s no one size fits all when it comes to people’s retirement goals, however consistently saving a relatively small amount more can increase your options and potentially buy you more retirement time. Pensions are both incredibly tax efficient and, over a number of years, allow for the potential of compound investment growth - meaning a little now can have a large future impact.

“Pensions aren’t always priority number one, particularly earlier in life, however increasing your contributions above the minimum levels is likely to pay off if you’re in a position to do so. Some employers match any contributions you make, giving your pot an even bigger boost.” It’s worth noting that the pot sizes illustrated here shouldn’t necessarily be seen as ‘ideal’ – savings targets should take numerous factors into account, including people’s target standard of living in retirement³ and their other assets, and are best set with the help of a financial adviser. However, saving more, as early as possible, can give people more control over how and when they retire.

ENDS

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Notes to editors

¹Boxclever conducted research among 6,350 UK adults. Fieldwork was conducted 26th July – 9th August 2023. Data was weighted post-fieldwork to ensure the data remained nationally representative on key demographics.

²Calculations assume the following:

Starting Salary	£25,000
Starting Age	22
Employer Contribution	5.00%
Employee Contribution	3.50%
Investment Growth	5.00%
Annual Investment Cost	1.00%

Calculations are intended only for the sole purpose of providing an illustration regarding the projection of savings and pensions. They should not be used with the intention to give an accurate representation of real-world outcomes

³ The Pensions and Lifetime Savings Association PLSA's Retirement Living Standards are a good place to start when thinking about what different standards of living in retirement might look like.

About Standard Life

• Standard Life is a brand that has been trusted to look after peoples’ life savings for nearly 200 years
• Today it proudly serves millions of customers who come to Standard Life directly, through advisers and through their employers’ pension scheme.
• Standard Life is part of Phoenix Group, the largest long-term savings and retirement business in the UK. We’re proud to be building on nearly 200 years of Standard Life heritage together
• Our products include a variety of Pensions, Bonds and Retirement options to suit people’s needs, helping our customers to invest and save for their future. We’re proud to offer a leading range of sustainable and responsible investment options.
• We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs, and plan a future they feel confident about.
• The value of investments can go down as well as up and may be worth less than originally invested.