Retirement savers could hit the million-pound mark in their pot by setting aside £460 a month if certain conditions are met, a new analysis shows.

According to Investec’s calculations, monthly pension contributions of £460 a month in a person’s 20s through a salary sacrifice scheme will guarantee £1million in their pension fund by the time they reach 65.

The calculations assume the fund grows at 3.8 percent a year net of charges and that contributions rise 2.6 percent yearly.

Faye Church, chartered senior financial planner at Investec Wealth & Investment, said: “It makes sense that the earlier you start saving into a pension, the more chance you have of reaching a £1million pension pot in retirement.

“Saving for retirement as early as your 20s not only means that the regular amount you contribute doesn’t have to be as high, but you also have to contribute less overall into a pension, as contributions made in the earlier years have more time to grow, and the more growth you have the quicker you’ll get to £1million.

“Of course, people have different views on retirement planning and achieving a £1million pension fund isn’t the aim for everyone.

“Many may want to invest their money in different ways outside a pension fund and if they can meet their retirement income needs by doing so then that is up to them.”

That £1million pension fund could, depending on how the saver manages withdrawals, generate a total net income of £40,375 for a basic rate taxpayer or £33,250 for a higher rate taxpayer and last until the age of 95, Investec Wealth and Investment’s calculations show.

That is based on investors withdrawing funds through Uncrystallised Funds Pension Lump Sum (UFPLS) and assumes a growth rate of 3.8 percent net of charges.

Withdrawals through UFPLS are assumed to be 25 percent tax-free cash and 75 percent gross withdrawals taxed at the marginal rate, and it is assumed investors receive the full state pension.

However, if people wait until their 30s before retirement saving then the monthly contribution to be a pension millionaire increases to £775 a month and nearly doubles to £1,400 a month if people wait till their 40s.

Without using a Salary Sacrifice scheme – which means employees and employers agreeing to reduce gross pay in return for the employer contributing the amount agreed directly into the employees’ pension saving National Insurance – monthly contributions in a person’s 20s to become a pension millionaire would be £525 rising to £885 in their 30s and £1,620 in their 40s.

Ms Church said: “The most effective way of saving into a pension is through your company or workplace pension scheme using salary sacrifice.

“It not only takes away the hassle of remembering to claim tax relief through your tax return over and above basic rate, you save on your own National Insurance Contributions and your employer may also pass on their National Insurance Contributions savings too. You can save just over 15 percent by contributing to your pension using salary sacrifice.”

Top tips to help pension pots reach £1million without increasing contributions

Firstly, Investec suggests “starting early”, as contributions made in the earlier years have the “most potential” to grow.

Secondly, it suggests looking into a Salary Sacrifice scheme. People can contribute around 15 percent less to their pensions than someone not using salary sacrifice.

Additionally, people could pay any bonus directly into their pension via payroll to save on paying tax on the bonus and National Insurance Contributions.

Investec also suggests people invest more of their pension fund in investments with the potential for higher returns but which also carry higher risk, such as equities, particularly in the early years.

Finally, Investec suggested people review any old schemes that may have higher charging structures, limited fund choices or underperforming funds – a few simple changes could “mean the difference” between a £1million pot or not.

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