Younger workers could potentially turn a proposed one-year state pension cash-out into a retirement pot worth almost £1 million, new analysis from IG has claimed.
A report published earlier this week by the Social Market Foundation suggested that younger people could be given the choice to receive the first year of their state pension early as a lump sum in exchange for postponing the point at which they start receiving their state pension.
IG analysed how that lump sum would have performed if invested over the past 30 and 40 years.
According to the investment and trading platform, if a 28-year-old had invested £12,548 in 1986 and left it untouched until age 68, they would have seen the money grow to £984,179 if invested in the S&P 500.
The same investment would have reached £423,463 in the MSCI World Index and £199,829 in the FTSE 100.
Over a shorter 30-year horizon, starting from 1996, the same investment would have grown to £280,906 in the S&P 500, £174,752 in the MSCI World Index and £85,485 in the FTSE 100.
Aaron Bright, analyst at IG, said: “The proposals currently being discussed raise an interesting question about how younger workers balance guaranteed retirement income against the opportunity to build wealth through investing.
“For younger people with decades until retirement, time is one of the most valuable assets they have. History shows that investing over long periods has often delivered returns that outpace inflation and cash savings, thanks to the power of compounding.
“The purpose of this analysis is to illustrate the long-term trade-offs that younger workers may wish to consider if proposals such as these were ever introduced. Any decision would need to weigh the potential for investment growth against the value and certainty of future state pension income.”
