See more This is Money on Google - save us as a Preferred SourceBy TANYA JEFFERIES, PENSIONS AND INVESTMENT EDITOR Updated: 06:00 BST, 3 September 2026
Three out of four people are mistaken about what determines the size of their pension by retirement, an industry study reveals.The most common belief is that individual contributions add the most to a pension over the course of a working life, and the second most popular is that employers put in the biggest sums.Just one in four out of 6,000 adults aged 18 to 80 correctly said that investment growth is easily the most important factor in the eventual value of a retirement fund.Some £65,000 of a typical £100,000 pension pot comes from compound investment growth, compared to £18,000 in individual contributions, says finance firm Standard Life.Employer contributions make up £13,000 and tax relief from the Government a further £4,000, according to its analysis of official figures. Just one in four out of 6,000 adults aged 18 to 80 correctly identified the most important factor in the eventual value of a retirement fund'Contributions are important, but the real benefit often comes from giving those contributions time to grow and generate returns over decades,' says Jenny Holt, customer savings and investment director. 'This is why starting early can make such a difference.'Standard Life says someone who starts working at 22 on a salary of £25,000 and pays minimum monthly auto enrolment contributions – 4 per cent individual, 3 per cent employer and 1 per cent tax relief – can build a fund of £210,000 by the time they are 68.This assumes investment growth of 5 per cent a year, salary growth of 3.5 per cent, inflation at 2 per cent and fees of 0.75 per cent.By comparison, it says waiting until age 27 to start saving into a pension under the same scenario would build a pot worth £170,000 because the money has less time to generate investment growth.'Compound investment growth can be one of the most powerful forces in pension saving, but our research suggests many people underestimate the role it plays,' says Holt.'Even modest contributions made earlier in your working life have longer to benefit from potential compound investment growth.'Standard Life's survey found that while 25 per cent of people know investment growth is the main driver of the final value of a pension pot, 39 per cent put it down to their own contributions.Some 27 per cent think it is employer contributions, and 8 per cent believe it is tax relief.Those polled were a mix of working, unemployed and retired people, and weighted to be representative of the UK general population on age, gender and region.Compound growth means because any investment return stays in your pot, you then make a return on that higher amount, and then a return on that even larger sum, and so on over and again.You might start with a small contribution to a pension but making returns on your returns will still have an exponential effect in the longer run.If you are older and have already enjoyed the benefits of compound growth, it is worth telling young adults in your life the story of Prudence and Extravaganza – see the table below
