Young Brits need just £275 a month for £560k pension pot, experts say

Putting away this amount each month could mean a ‘comfortable’ retirement by the age of 67, experts claim

Financial experts have suggested that Brits could be in for a ‘comfortable’ retirement if they manage to stash away an average of £275 per month into their pension from the young age of 22. They estimate that this would accumulate to a retirement pot of £560,000.

This impressive figure is based on an average annual return of five per cent and exceeds the current minimum pension pot recommended by The Pension and Lifetime Savings Association’s (PLSA) 2025 Retirement Living Standards by a hefty £20,000.

Rotimi Merriman-Johnson from Mr MoneyJar has proposed that consistently investing £275 each month could result in reaching this target by the age of 67. What’s even better, is not all of the £275 would need to come directly from the individual’s own pocket.

Thanks to the Pensions Act 2008, every employer in the UK is required to enrol eligible staff into a workplace pension and contribute towards it, starting from their first day. This means if you are over 22 and earn more than £10,000 a year, you qualify for a workplace pension.

Under auto-enrolment rules, eight per cent of your gross salary is funnelled into that pension each month. However, only four per cent actually comes out of your salary. One per cent is government tax relief on the employee’s contribution, and the remaining three per cent is contributed by your employer.

This expert advice follows research involving 1,000 adults aged between 18 and 28, which found that 53 per cent have yet to start saving for their pension.

The ‘Gen Z Pension Report’ by smart money app Plum has revealed that one in five Gen Z individuals have not given any consideration to their pension, despite two thirds believing they will be able to retire comfortably.

On average, they anticipate starting to take their pension seriously at the age of 34. Over two thirds simply dismiss retirement as being too distant a prospect to concern themselves with.

Over a quarter of people believe they don’t currently earn enough to save, and 16 per cent have never been educated about what a pension is or how it functions. A candid one in ten admit they don’t understand how pensions work.

Rotimi, speaking in partnership with Plum, said: “Many people feel overwhelmed by pensions, but thinking about your future finances doesn’t have to be daunting. The key is understanding how advantageous it can be to start investing in your pension as early as possible, to take advantage of the power of compounding.

“Saving money into your workplace pension also nets you ‘free money’ in the form of employer contributions and crucial tax relief from the government. Don’t underestimate the impact that consistent, forward planning, and making the most of all available benefits, can have on securing the retirement you deserve.”

The research found that young adults would feel more confident starting a pension if they had a higher salary and clearer information. They expressed a desire to know how much they need to save for their retirement, and would appreciate having an app or tool to guide them through the process.

On a positive note, despite the lack of knowledge, 85 per cent are aware that small, weekly contributions can make a significant impact on their pension pot.

According to figures by OnePoll, they estimate that they would need to save an average of £306 each month, including their company’s contributions, in order to retire comfortably in life.

Rajan Lakhani, head of money at Plum said: “Forward planning can literally make a world of difference to how you’ll live your life. But it seems it’s not very high on the agenda for young people and our research shows this could be down to lower salaries and lack of knowledge.

“It is however promising that they understand the importance of pension contributions for a comfortable retirement. “And the amount that those polled think they need to save is close to the actual amount needed according to experts, suggesting they know what they need to do.

“Starting early with even small deposits to your pension is key as these add up considerably by the time you reach that stage. As well as your pension, it can be highly beneficial to save into a Lifetime ISA (LISA) as you can get 25 per cent of your contributions matched each tax year from the government up to £1000. This can be put towards your retirement or a house deposit.”