Why your personality type could cost your pension £121k

Are you an early bird up with the lark? Or do you take a more relaxed approach to the day? Your personality traits could have more impact on your retirement than you may realise.

According to new research, your personality type could make a six figure difference to your pension pot over a saving lifetime.

That’s if you follow the principles of the latest social media trend, which has people labelling themselves either Type A (Competitive) or Type B (Easygoing).

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

Type A individuals are highly organised, ambitious, and driven by a sense of urgency. Meanwhile Type B personalities are more spontaneous, laid back, and likely to go with the flow.

The trend has largely focused on how these traits affect day to day life – but it also offers up a broader lesson for your money in retirement. Embracing a Type A pension saving approach could significantly boost your retirement pot, with differences of up to £121,000, depending on your saving habits, according to pension provider Standard Life.

Dean Butler, managing director for retail direct at Standard Life said: “While the Type A versus Type B personality trend on social media has been a fun way for people to explore their habits and quirks, it also highlights some important truths when it comes to retirement planning.

“Whether you’re more of an organised Type A or a more of a go with the flow Type B, understanding how your approach to saving today can impact your retirement pot tomorrow is crucial.”

How to save more into a pension

When it comes to retirement, Type A’s are more likely to start saving into their pension early and boost their savings where possible. In contrast, Type Bs may be less inclined to see retirement saving as a priority, and as such contribute only the minimum or nothing at all.

The impact these two different approaches can have on a pension is potentially huge.

Someone who begins working at the age of 22 on a salary of £25,000 a year and pays only the minimum monthly auto-enrolment contributions (5% employee, 3% employer – the 8% rule) from the age of 22, could have a total retirement fund of £210,000 by the age of 68, allowing for 2% inflation over the period, by Standard Life’s calculations. This might be called the Type B approach.

A Type A personality, on the other hand, who starts at the same age and on the same salary but increases their employee contributions to 6% (9% in total including 3% employer contribution) could end up with a retirement pot of £236,000 by the age of 68 (adjusted for 2% inflation).

Someone who chooses to boost employee contributions further to 8% could build up an even larger retirement pot of £289,000, in today’s prices.

Even contributing a lump sum later on might not be enough to bridge the personality type-gap. For example, someone who contributes the minimum until age 50 and then adds a £20,000 lump sum could have a final pot of £227,000, substantially short of the £289,000 seen by individuals making a consistent employee contribution of 8%.

The cost of pausing pension contributions

With a personality trait of Type B individuals focussing on the here and now, pausing pension contributions completely could also be tempting. However, once again this can be costly for retirement pots.

For example, an individual who chooses to delay pension saving until the age of 30 could end up with a retirement pot of £168,000 – this is £121,000 lower than that of an individual paying an 8% employee contribution from the age of 22.

Meanwhile an individual who decides to pause contributions between the ages of 25 and 30, could also feel the impact, ending up with a final retirement pot of £184,000 (an £105,000 reduction).

*Assumptions: Starting salary £25,000, 3% employer monthly contributions, 5% annual investment growth. Figures are reduced to take effect 2% inflation. Annual management charge of 0.75% assumed.

By delaying pension saving, individuals miss out on the power of years of potential compound investment growth.

Butler said: “Although putting money aside for retirement might not feel like an immediate priority, particularly for those who prefer to live in the moment, it’s clear from our analysis that a consistent less sporadic approach is likely to create good outcomes.

“By saving as soon as possible you improve your chances of securing the income you’ve planned for retirement, potentially adding more than £100,000 to your pension.”