Couples without children could add as much as £351,000 to their retirement savings by redirecting the money they would have spent raising a child into their pension instead, according to new calculations from Standard Life.
The pension firm found that so-called DINKs, couples with a dual income and no kids, could build a pension pot worth around £603,000 by the age of 68 if they contributed an extra £13,900 a year from the age of 30 for 18 years.
That figure is based on research published last year by the Child Poverty Action Group, which estimated it costs a couple approximately £250,000 to raise a child to the age of 18. Spread evenly over those 18 years, that works out at £13,900 annually.
How the £351,000 gap is calculated
Standard Life compared that £603,000 pot with the retirement savings of someone who began saving into a pension at 22 on a salary of £30,000 a year but contributed only the minimum required under auto-enrolment throughout their career. That comparison produced a gap of roughly £351,000 in favour of the person making the extra £13,900 annual contribution.
Auto-enrolment is the system under which UK employers must automatically sign eligible staff up to a workplace pension unless they opt out. The minimum contributions Standard Life used in its comparison amount to five per cent from the employee and three per cent from the employer.
Saving half the amount still adds up
Standard Life said that even putting aside half of the £13,900 figure, £6,950 a year, could make a substantial difference to someone's retirement fund. Its calculations show that contributing this amount could add £175,500 to a pension pot, taking the total savings, allowing for inflation, to approximately £428,000 by age 68.
Emma Furlonger, managing director for workplace pensions at Standard Life, said that for people without child-related costs there may be periods when there is a little more flexibility in the household budget. She said it might not be realistic to put the full equivalent cost of raising a child into a pension every year, but that the figures show just how powerful additional saving can be when it is given time to grow.
Parents can boost their pensions too
Furlonger said parents could also find points in their lives when it makes sense to pay more into their pension. She said it does not have to be all or nothing, and that putting away a bit more when possible, whether after a pay rise, once a debt has been cleared, or simply when there is more disposable income, can make a meaningful difference over the course of a working life. She said the key is finding a balance that allows people to enjoy their money today while also making sure some of it is working for their future.
Gen X feeling the squeeze
Separate research from pension consolidation service PensionBee found that many people remain far from optimistic about their retirement prospects. The study found that people in their late 40s and 50s are the most gloomy about retirement, with one in ten saying they are unable to imagine life after work.
Around half of those surveyed said they did not seriously consider their pensions until well into their 40s, and feel they left retirement planning too late. PensionBee identified the so-called Generation X age group, those aged 45 to 60, as the most likely to be under-saving for old age.
Maike Currie, vice president for personal finance at PensionBee, said Generation X have been squeezed from every angle. She said they came of age as final salary pensions were disappearing, while auto-enrolment arrived later in their careers. Currie said many in this generation have weathered repeated economic shocks while finding themselves sandwiched between supporting children and caring for ageing parents, adding that it is no surprise their own retirement has sometimes slipped down the priority list.
Among those who felt they had left their pension planning too late, 40 per cent said they could not afford to pay attention to their pension sooner, and 18 per cent said they did not know where to start.
