Published On: Mon, Jul 15th, 2019

Pension contributions: How to amass £100,000 by age of 60 – how much to save each month | Personal Finance | Finance

A pension pot may be something that a person uses during their later years, but that’s not to say that it’s not something that won’t be thought about during one’s working life. In fact, regular pension contributions are what can see an individual amass a wealthy pension fund. The amount that a person may wish to amass in their private pension will vary. And, while one analysis has taken a look at how to get a pension fund of £447,000, another has looked at the contributions required for a £100,000 fund.

Recently, pensions and investment company Aegon shared a new analysis of the pension contributions required in order to reach the latter savings pot.

What’s more, the analysis breaks down the period of time in which these contributions would be necessary for this fund.

The figures are assumed with five per cent investment growth charges, reduced by 0.75 per cent charges on the fund each year.

There is also the assumption of a rise with inflation of two per cent each year.

Aegean also note that for those saving into a typical workplace pension, the amount that is required is only actually half of the figure – due to employer contributions as well as government tax relief boosting savings.

That’s because under automatic enrolment rules, every £1 saved out of take home pay becomes £2 following the employer’s contribution and a tax boost from the Government.

How to save a £100,000 pension fund, according to Aegon

40 years of pension contributions

If a person wants to save £100,000 Aegon advise that the initial monthly contributions should stand at £60.

35 years of pension contributions

Aegon suggest that the figure should rise to £80 per month, in order to amass £100,000 in 35 years’ time.

30 years of pension contributions

For those looking to make 30 years-worth of pension contributions, the analysis has found the initial contribution should stand at £109 per month.

25 years of pension contributions

By making initial monthly contributions of £154 per month, a saver can expect to have amassed £100,000 in 25 years, Aegon said.

20 years of pension contributions

Should a person wish to save the £100,00 figure in 20 years, the analysis suggests initial monthly contributions of £225 are required.

Steven Cameron, Pensions Director at Aegon, said of the analysis: “Many might think building up a savings fund of £100,000 is completely out of reach.

“But our analysis shows that provided you get into the savings habit early enough, it could be much more affordable than you might guess.

“For someone starting saving in their 20s, an initial monthly investment of as little as £60, rising with inflation and with investment growth of five per cent, could produce £100k after 40 years.

“And if that same individual is contributing just half this, or an initial £30 from take-home pay, into their workplace pension, they too could be on target for a £100,000 pension pot.

“Getting into the savings habit early can make a huge difference to how much you can build up.

“The other important aspect is where you are investing your money,” Mr Cameron continued. “An initial £60 per month saved in a savings account or cash ISA returning one per cent per annum would grow to only £52,000 over 40 years.

“On the other hand, those prepared to take more investment risk could see higher returns. Over 40 years, an initial £60 contribution per month, but with an investment return of six per cent each year rather than five per cent would produce a pot of £126,100, around £26,000 higher.

“If considering investment choices, we recommend seeking advice.”

Aegon also point out that as with all investments, the value can fall as well as rise, and isn’t guaranteed – meaning customers could be at risk of getting back less than they originally invested.

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