Time is money when it comes to pensions, says L&G boss António Simões

Albert Einstein may not have said it but, as Warren Buffett has often repeated and proven, compounding interest is the eighth wonder of the world.

It’s why it’s so important that pensions reform has been plucked from the too difficult box and placed firmly on the agenda.

To get Britain growing, we need to rewire the financial system to boost investment while making people’s hard-earned savings work harder.

‘Patient’ pensions capital is central to this ambition – increasingly well understood as a national economic lever that can catalyse growth, deepen capital markets, and support financial stability. 

Australia’s £2trillion pension pool has helped power domestic investment, and shield its economy from global shocks.

But when it comes to building our personal pension pots, patience is a misnomer. 

The challenge of pensions adequacy – making sure all of us have enough to live on in later life – is urgent and pressing.

Adequacy depends on three things: 1. when people start saving; 2. how much is being put into the pot, and 3. what returns they get.

We have heard a lot about the last one and, at L&G, our Private Markets Access Fund is helping more people access the potential high returns available through investments in private markets. 

In addition, our default Lifetime Advantage Fund already has up to 15 per cent invested in these assets. But the other two are critical.

Starting early makes all the difference and whilst time is a simple, potent lever, it is often the most neglected.

Under the current system, the average person would be 15 per cent better off when they retire if they started saving at 18 instead of 22. 

The problem is that advice to save early rarely lands. 

It’s hard to imagine yourself as a retiree when you’re only just starting out in working life. But if you create the habit – it sticks. 

This is where Government can help by lowering the auto-enrolment age from 22 to 18. The powers already exist and countries like Australia and Canada have shown it’s possible.

How much goes into your pot is also crucial. Automatic enrolment brought millions into the system, but minimum contribution levels are still set too low and need to be gradually increased.

The second phase of the Government’s pensions review is the right moment to act on these two areas.

It would be a win-win. Those at retirement would be in a stronger financial position, less reliant on the state. 

And when more people save, more capital is available for the UK economy, supporting jobs, infrastructure, and national resilience. 

Bigger pension pots could be channelled into productive investment, helping to fund growth and regeneration. 

And retirees would have more to spend. This matters, given that consumer spending drives 60 to 63 per cent of UK GDP and retirees already account for a quarter of that total.

The best financial gift we can give young people is time. A pension opened at 18 may not seem much now, but in 30 or 40 years, it could mean everything. So, let’s stop wasting time. Let’s start saving it.

António Simões is chief executive of L&G.