BUILDING A £1 MILLION PENSION POT

The point at which savings into a pension fund are commenced has the greatest impact on the level of contributions required. We have calculated that a medium risk investor in their 20s would need to contribute £460 a month via salary sacrifice to accumulate £1 million (or £525 a month otherwise). Whereas an investor in their 40s would need to contribute over three times this figure. For these numbers, we’ve assumed your pension fund continues to grow throughout your retirement at a rate of 3.8%, net of charges. Of course, this is not guaranteed, and a lower or higher return rate would result in different outcomes.

Saving via salary sacrifice increases the tax efficiency through further savings in National Insurance contributions.

The figures in the table above illustrate the gross contributionincluding the tax relief received from the government. Assumed annual growth rate of 3.8%.

The tables below show the actual cost to you, which will be lower: Contributions via salary sacrifice:

Contributions without salary sacrifice:

Conclusion

It is imperative that the funds are invested in a portfolio, aligned to an individual investor’s objectives. It may be that additional risk can be taken in the early years as a reflection of the long-term investment horizon. The asset allocation and risk level should be reviewed annually, ideally with a professional. This review will also highlight performance and charges, which may elicit change.

If you’d like personalised advice on how to build a £1 million pension pot, or would like to know if you are on track to enjoy the retirement you aspire to, please contact Henry Silver at henry.silver@investecwin.co.uk or call 0151 227 2030

Important information

The value of investments can go down as well as up and you may not get back the full amount invested. Your capital is at risk.

Tax treatment is dependent on individual circumstances. Information is provided in good faith and based on our understanding of current tax law and HMRC practice, which may be subject to change. This publication’s contents do not constitute a personal recommendation or advice. It is important to consult a professional adviser before taking any action.