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Pension delay could cost early thirties £300,000

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People are significantly limiting their retirement income by putting off pension planning until their early 30s, according to Friends Life.

Its Workplace Savings Index has calculated a 32-year-old who puts £162 a month into a pension until age 65 will have a projected retirement income of about £287,000.

This is less than half the pension pot (some £605,000) that would be built up by somebody making the same contributions from age 22.

The index said the funding gap could also cost early 30s £58,000 in additional contributions made to increase their pension before retirement.

But the statistics have also revealed many people under 30 have failed to match their contributions with inflation since the first quarter of 2009.

The index showed overall, average contributions now stand at £283 a month, but inflation is eroding the value of investments and the value of contributions.

Martin Palmer, head of corporate marketing benefits, Friends Life, said: “The reality is that contribution increases, most likely the result of salary increases, aren’t big enough.

“Failing to beat inflation, the value of the monthly contribution as well as the value of a member’s investment over time is being eroded.”

Pensions are also being hit by ‘double defaulting’, which is when an individual joins a company scheme but does not actively select a fund or the contribution rate they pay.

Palmer said: “To reverse this decline, auto-enrolment will need to do more than rely on inertia to encourage people away from ‘double-defaulting’ and to proactively take charge of their contribution levels.”

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