Stat of the month: £43,000 is the value of a university degree at retirement

Degree pension

Going to university could boost your pension fund by £43,000 at retirement, according to analysis by insurance company Aviva.

Data from the Department for Education published this week shows that young graduates (aged 21 to 30) earn on average £6,000 more each year than non-graduates. The 2016 median income for young non-graduates is £19,000. For young graduates it is £25,000.

Aviva calculates that by the time the non-graduate and the graduate reach retirement, the difference in their pension funds could be over £43,000 – with the typical non-graduate amassing £97,200 by the age of retirement and the typical graduate amassing £141,000.

This is based on the conservative assumption that both are automatically enrolled into a workplace pension at age 22; incomes rise with price inflation; and minimum employee and employer contributions are made until retirement.

 

The university boost to your retirement funds could be even greater depending on the classification of your degree. A first-class graduate could look forward to a total pension boost of more than £57,000. If you have a post-graduate degree, the boost could be more than £72,000. A boost of £72,000 could add more than £3,500 to your annual retirement income for the rest of your life.

However, many prospective students and their parents will still be concerned about the cost of further education. Research in 2016 by the Sutton Trust found English university graduates face college debts of on average £44,000 when they graduate from their course.

Meanwhile, the government's announcement of a March RPI rate of 3.1% means students will be charged substantially more interest on their loans - 6.1% from September 2017.

New parents will need to save £228 a month to cover the cost of their child’s university degree, as analysis suggests these expenses will rise to £74,307 by 2033.

'Students are not blind to their needs in later life'

Alistair McQueen, head of savings and retirement at Aviva says: “Much of today’s discussion is focused on the cost of going to university and the rising levels of student debt are an understandable concern. Indeed, Aviva’s own research found that a typical graduate expects it will take at least 11 years to pay off their university debts.

“The data from the Department for Education reminds us there is a significant potential value associated with going to university. It suggests university provides a good return on your investment of time, money and effort.”

He adds: “There are many factors to consider when deciding whether to go to university, and retirement may be the last thing on a student’s mind as they begin their working life. But the 500,000 who enter higher education this year are not blind to their needs in later life.

“Aviva’s research found that saving for retirement is within the top four financial priorities for the young, after property, family and buying a car. Understanding the full picture when you are young will help build a solid financial footing for later life.”

Published: 26 April 2017
Last updated: 26 April 2017

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