The best time to start a pension was 10 years ago. The second best time is today.

Let’s look at the maths behind that statement.

Say you started paying £100 per month into a pension 10 years ago. That’s a wealth window to today’s date of 120 months. Let’s say investment growth is 5% per annum (after charges).

[It won’t be by the way. It’ll be more than 5% or less than 5% as the market goes flying up and down. Almost certainly never exactly 5%. Anyway lets imagine that the average investment growth is 5% each year to illustrate the point. And it’s 5% per annum every year to make my point easier to undersatand]

The £100 paid in in month 1 will have grown by 5% pa for 120 months i.e. £164.70

The £100 paid in month 2 will have grown by 5% pa for 119 months i.e. £164.02

The £100 paid in month 3 will have grown by 5% pa for 118 months i.e. £163.64

And so on…

The £100 paid last month will have grown by 1/12th of 5% i.e. £100.42

The £100 paid this month will still be worth £100.

But next month everything each value moves on by a month.

The £100 paid in month 1 will have grown by an additional month i.e. 121 months to £165.39

The £100 paid in month 2 will have grown by an additional month i.e. 120 months to £164.70

The £100 paid in month 3 will have grown by an additional month i.e. 119 months to £164.02

And so on.

The 1st payment of £100 has increased from £164.70 to £165.39. That’s £0.69

The 2nd payment of £100 has increased from £164.02 to £164.70. That’s £0.68

The 3rd payment of £100 has increased from £163.64 to £164.02. That’s £0.68

And so on.

The first instalment has grown the most because it’s been invested the longest. And each moth it grows more than al the others because 5% of a bigger number is more than 5% of a smaller number.

It’s that simple.

Using the 5% investment growth from above, if you start saving £100 per month at age 20 and take the money out to spend at 60 you’ll have £735.84 in your pocket. Just from that first month’s £100.

If you didn’t start until 30 and took the money out at 60 you’d only have £446.77 to spend.

By starting 10 years earlier you’d have 65% more money. And who wouldn’t want 65% more money.