If you are sitting in some exotic location in the sunshine sipping a fruity rum-laced punch, thinking about your pension is probably one of the last things on your mind.
But pension experts are pointing out that jetting off to the sun every year can cost savers thousands of pounds of income in retirement.
The real point is that spending decisions you make throughout life will affect your pension because they diminish the amount of cash you have available to fund retirement savings.
When financial experts talk about people living beyond their means, they do not necessarily mean they are borrowing more than they earn to fund an artificial lifestyle, but that they are spending too much by upgrading to five-star when perhaps three-star would suffice.
Early bird savers do better
It’s not a coincidence that rent and mortgage arrears take their biggest hammering after the summer and Christmas breaks when many are tempted to overspend.
To prove the point, one financial firm looked at a family’s summer holiday spending.
The comparison was a luxury break in sun-soaked Mauritius and an affordable holiday in France.
Kate Turner, of Towry, the firm that compiled the figures, said: “Spending less on big purchases like holidays can dramatically increase the size of your retirement fund. Saving early and compound interest can really add value to a pension over a long term.
“Government changes to pension rules are aimed at encouraging saving over a longer period rather than those who put large lump sums aside later in life.
“Retirement savers should make the most of their tax advantages as well as the compound interest and investment returns made available by saving over the long term.”
Pensions and Luxury v Affordable Summer Holidays
| Luxury holiday – Mauritius | £ | Value holiday – farmhouse in France | £ | Difference | Pension saving (£) |
| Travel – flights for four | £ 3,783.84 | Return ferry Portsmouth to Le Havre | £693 | £3,090.84 | 90467.25 |
| Accommodation for four in a hotel (one week) | £3,725.79 | Brittany Farmhouse (one week) | £472 | £3,253.79 | 95,236.71 |
| Diving trip | £443.54 | Visit to local market | £50 | £393.54 | 11,518.71 |
| Single trip travel insurance | £112.84 | Single trip travel insurance | £50.54 | £62.30 | 1823.49 |
| Meal for four | £210 | Meal for four | £76 | £134.00 | 3922.11 |
| TOTAL | £8,276.01 | N/A | £1,341.54 | £6,934.47 | £202,968.27 |
| TOTAL ANNUAL ANNUITY | £12,247.67 |
Source: Towry
Assumptions: A 45 year old person; target retirement age of 65; 3.5% net fund growth rate and higher rate tax payer
