Analysis by Aviva suggests that going to university could boost your pension fund by £72,000 at retirement.
Today’s data from the Department for Education[1] shows that young graduates (aged 21 to 30) earn on average £6,000 more each year than non-graduates. The 2016 median income for young non-graduates is £19,000. For young graduates it is £25,000.
By the time the non-graduate and the graduate reach retirement, the difference in their pension funds could be over £43,000 – with the typical non-graduate amassing £97,200 by the age of retirement and the typical graduate amassing £141,000. This is based on the conservative assumption that both are automatically enrolled into a workplace pension at age 22; incomes rise with price inflation; and minimum employee and employer contributions are made until retirement[2].
The university boost to your retirement funds could be even greater depending on the classification of your degree. A first-class graduate could look forward to a boost of more than £57,000. If you have a post-graduate degree, the boost could be more than £72,000. A boost of £72,000 could add more than £3,500 to your annual retirement income for the rest of your life[3].
| Median income | Pension fund at retirement | University boost (beyond non-graduate pension fund at retirement)
|
Non-graduate | 19,000 | 97,200 | - |
Graduate – 3rd class | 20,000 | 103,000 | 5,800 |
Graduate – Lower 2nd class | 24,000 | 133,000 | 35,800 |
Graduate – average | 25,000 | 141,000 | 43,800 |
Graduate – Upper 2rd class | 25,000 | 141,000 | 43,800 |
Graduate – 1st class | 27,000 | 155,000 | 57,800 |
Post-graduate | 29,800 | 170,000 | 72,800 |
Commenting on the analysis, Alistair McQueen, Head of Savings & Retirement at Aviva said, “Much of today’s discussion is focused on the cost of going to university and the rising levels of student debt are an understandable concern. Indeed, Aviva’s own research[4] found that a typical graduate expects it will take at least 11 years to pay off their university debts.
“Today’s data reminds us there is a significant potential value associated with going to university. It suggests university provides a good return on your investment of time, money and effort. A university degree could boost your pension fund by more than £72,000 – enough to generate an extra £3,500 for every year in retirement.
“There are many factors to consider when deciding whether to go to university, and retirement may be the last thing on a student’s mind as they begin their working life. But the 500,000[5] who enter higher education this year are not blind to their needs in later life. Aviva’s research4 found that saving for retirement is within the top 4 financial priorities for the young, after property, family and buying a car. Understanding the full picture when you are young will help build a solid financial footing for later life.”
Ends
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Fiona Whytock, Senior Media Relations Manager, T: +44 (0)7800 692299 E: Fiona.whytock@aviva.com
Notes to editors:
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[1] Source: https://www.gov.uk/government/statistics/graduate-labour-market-statistics-2016
[2] Methodology: The projected retirement funds are based on the assumption that the individual is automatically enrolled into a workplace pension at age 22 and minimum employee and employer contributions are made until retirement at their current state pension age of 68. A medium investment growth rate of 2.4% after inflation of 2.5% has been used. And it is assumed the workplace pension carries an annual charge of 0.75%. Incomes will rise in line with price inflation.
[3] Assumption: This is based on the assumption that the £73,000 is used to purchase a single life level annuity based on rates currently presented by the online Money Advice Service rate comparison service.