Young individuals have a longer period to invest prior to retirement. This extended period allows for a more aggressive investment strategy and a greater tolerance for market fluctuations. IMPACT ON PENSIONS: Investors can afford to take more risk the longer an investment can be held for. Higher risk can offer the potential for higher returns. This can be particularly beneficial in the case of pensions, where the goal is long-term wealth accumulation.

For example, Morgan invests £10,000 with interest of 3% applied annually.

Over a 25-year period this would grow to £20,937.78.

Over a 40-year period this would grow to £32,620.38.

This is a difference of £11,682.60.

Is not only calculated on the initial investment but also on the accumulated interest from previous periods.
IMPACT ON PENSIONS: Starting early allows your contributions to benefit from compound interest over an extended period. This compounding effect can drastically boost the value of your pension over time. The earlier you start, the more time your money has to grow exponentially.

For example, Morgan invests £10,000 with interest of 3% which is applied monthly.

Over a 25-year period this would grow to £21,150.20.

Over a 40-year period this would grow to £33,151.49.

This is a difference of £12,001.29.

Pensions often come with tax advantages. Personal contributions made to pension funds are usually tax deductible, meaning you get tax relief on the amount you contribute. Relief is applied at the same rate an investor pays income tax as long as it is matched by income in that band (i.e., 20%, 40% or 45%). So, a higher rate taxpayer with £70,000 annual income would only get higher rate relief on £70,000 less the higher rate threshold of £50,270, or £19,730 of gross contributions. Tax relief above 20% is claimed through self-assessment or tax code change for higher rate relief.
IMPACT ON PENSIONS: By investing early and taking advantage of tax relief, you effectively reduce your taxable income while building your pension fund, providing a double benefit to your overall financial situation.

For example, Morgan invests £10,000 with growth of 3% annually, applied monthly. They also contribute £100 monthly to the pension. Morgan is a basic rate taxpayer and receives a further £25 in tax relief for a total monthly contribution of £125.

If £100 were saved monthly outside of a pension where tax relief is NOT available:

Over a 25-year period this would grow to £65,750.98.

Over a 40-year period this would grow to £125,757.44.

This is a difference of £60,006.46.

If £100 were saved monthly in a pension structure, receiving £25 in tax relief, for a total contribution of £125:

Over a 25-year period this would grow to £76,901.17, meaning the tax relief generates an additional £11,150.20.

Over a 40-year period this would grow to £148,908.93, meaning the tax relief generates an additional £23,151.49.

This is a difference of £72,007.75.

Employers are required to offer pension plans to their employees and contribute minimum percentage to those enrolled in the scheme. This percentage can be based on total . Employees do not receive tax relief on employer contributions unless paid through salary sacrifice. For simplicity we will consider this as a percentage of the total income.
IMPACT ON PENSIONS: By contributing to a pension early, investors not only benefit from the long time horizon, compound interest and personal tax relieved regular contributions but also maximize the potential of employer contributions, amplifying the overall growth of the pension fund.

For example, Morgan invests £10,000 with growth of 3% annually, applied monthly. They also contribute £125 monthly, inclusive of basic rate tax relief, to their pension. Morgan’s salary is £20,000. 

A 3% employer contribution to a salary of £20,000 would be £600 annually or £50 monthly. 

Over a 25-year period this would grow to £99,201.56.

When we compare this back to the original example of a lump sum investment being left to grow for a specific time horizon.

Over a 25-year period compound interest, personal contributions, tax relief and employer contributions would generate an additional £78,263.79.