Power of compound interest

Effective investment gets the power of compound interest working in your favour.

The ‘power of compound interest’ is a way of describing the way that money paid early in your career is more valuable in pension terms because it has more time to generate investment returns.

The table shows projected fund values at retirement, based on sample fund values for a member at ages 25, 35 or 45. You can see a lower current fund value may be more valuable, if it has more time to grow.

Age Current fund (£) Projected fund at retirement (£)
25 £5,000 £60,900
35 £7,500 £48,900
45 £10,000 £34,900

See what the table looks like at different rates of investment growth

Age
Current fund (£)
Projected fund at retirement (£)
25
Current fund (£)£5,000
Projected fund at retirement (£)£13,200
35
Current fund (£)£7,500
Projected fund at retirement (£)£15,500
45
Current fund (£)£10,000
Projected fund at retirement (£)£16,200
25
Current fund (£)£5,000
Projected fund at retirement (£)£28,500
35
Current fund (£)£7,500
Projected fund at retirement (£)£27,700
45
Current fund (£)£10,000
Projected fund at retirement (£)£23,900
25
Current fund (£)£5,000
Projected fund at retirement (£)£60,900
35
Current fund (£)£7,500
Projected fund at retirement (£)£48,900
45
Current fund (£)£10,000
Projected fund at retirement (£)£34,900
25
Current fund (£)£5,000
Projected fund at retirement (£)£128,300
35
Current fund (£)£7,500
Projected fund at retirement (£)£85,500
45
Current fund (£)£10,000
Projected fund at retirement (£)£50,700

These figures have been produced by Aon Hewitt to assist FuturePlanner with its communications. They show the importance of compound interest. Funds invested earlier have longer to earn expected investment returns than those invested at later ages. The figures are based on the following assumptions:

  • The member will retire at age 65.
  • The entire fund will grow each year until retirement in line with the various investment returns noted. Included in the table above are a range of scenarios highlighting how a member's fund will be impacted by increasing rates of growth. Actual investment returns may be higher or lower than the four scenarios shown above, and will also depend on how the member's fund is invested. The pattern of investment returns also has an important influence on the accumulated fund.
  • Investment charges are 0.55% of the fund each year. The growth figures above are shown gross of these fees. Actual investment charges will depend on how the member's fund is invested, and may differ from this.
  • The projections make no allowance for any further contributions being made in future and are not adjusted for inflation (in nominal terms).