The Power of Pension Planning
A Tale of an ￡11 Million Retirement Pot
A Freedom of Information request to the Office for National Statistics (ONS) has revealed that a pension saver has amassed a staggering ￡11 million retirement pot. Further, 46,000 investors have pension pots exceeding ￡3 million, and 128,000 have nest eggs valued between ￡2 million and ￡3 million.
The ￡11 million mega pot translates to a potential yearly income of ￡540,000 or ￡10,600 per week for the saver, whose identity remains anonymous. This figure is over 30 times the average weekly retirement income of ￡349.
Excellent pension planning
Rob Burgeman, an investment manager at RBC Brewin Dolphin, applauds this 'incredible' achievement as a model of excellent pension planning. He estimates that to reach this impressive sum, an 18-year-old would need to contribute ￡49,260 annually until they turn 68.
The ONS data also indicates that approximately 1.1 million pension savers have a pot worth over ￡1 million. To fall within the top 10% of private pension pots, you would require savings of ￡374,000 or more.
Amass significant savings
Interestingly, the data shows that men make up 66% of savers in the top 10% of pension wealth, while the bottom 50% of savers hold only 1% of pension wealth.
Burgeman suggests even those with modest incomes can amass significant savings. An 18-year-old entering the workforce today and saving ￡389 monthly could reasonably expect to retire with a ￡1 million pot by age 68, assuming annualised returns of 5% after fees.
Growing pension wealth
He highlights the importance of employer contributions, auto-enrolment into pension plans, and tax reliefs in building a substantial retirement fund.
He explains: 'A basic rate taxpayer saving ￡80 of take-home pay into a pension gets a ￡20 top-up from HMRC, making a total investment of ￡100 — or an instant return of 20 per cent.'
Compounding interest also plays a significant role in growing pension wealth.
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Scrapping the Lifetime Allowance
For example, a ￡100-a-month plan would cost an investor ￡80 per month, leading to total contributions of ￡9,600 after ten years. But factoring in compounded interest, this could balloon to ￡15,592, assuming 5% annualised returns after fees.
In March, the Government backed a bill to lower the auto-enrolment age on pensions to 18 from 22, potentially enabling workers to start building their retirement pot earlier. Additionally, it announced plans to scrap the Lifetime Allowance, removing the limit on the total amount someone can save in their pension without a tax charge. However, the annual allowance remains at ￡60,000 for all but the wealthiest.
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THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND ON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED.
THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
This post originally appeared on?GSBcapital.com
Partner - GSB Capital
1 年Excellent article, well done GSB team - some very sobering stats worth reading.