Young workers starting their careers in 2016 will have earned a total of £1 million by the time they are 46 years old, according to new analysis by Prudential. The results show that an 18 year old starting their career this year and earning the projected average salary for their age group throughout their career, will have amassed earnings of more than £1 million by 2044 – at the age of 46 years and 1 month.
The analysis is based on figures from the latest ONS Annual Survey of Hours and Earnings (ASHE) and assumes that future average wage inflation will mirror average pay increases seen during the period 2006 to 2015.
By the time the average worker has earned their first million pounds they will have paid approximately £138,500 in tax and £99,680 in national insurance – a total of more than £238,000. However, the impact of tax on a lifetime’s earnings can be reduced by making contributions to a pension. An average-earning individual paying five per cent of their income personally into a pension over the course of their career could receive tax relief of £10,000 on their first earned million.
Vince Smith-Hughes, a retirement income expert at Prudential, said: “For many people it can be surprising just how much a lifetime of earnings can add up to. With many people now working until later in life, someone earning the projected average salary over their career can expect to earn a total of over £2 million in their lifetime.
“With this in mind, the approach of saving as much as possible as early as possible in life is the most likely way for most people to be able to secure a comfortable income in retirement. Workers who have the opportunity to contribute to a workplace pension scheme will benefit from employer contributions as well as making a dent in the more than £200,000 they would have to pay the tax man on their first earned million.
“There are many different types of saving products with different levels of tax efficiency depending on your circumstance, and it should be remembered for example that the new Lifetime ISA will be another option when it becomes available in April 2017. As the options open to savers increase, so does the value of taking professional financial advice.”
Across the country, workers in London will reach the million pound milestone the soonest at 39 years and six months. Those in the South East of England and Scotland are the next fastest earners (45 year, six months and 47 years, three months respectively), while workers in Wales will have to wait until they turn 50 to earn a total of £1 million.
