Young people are losing out on pension opportunities

As a former Olympian and boxer with gold medals, the secret to increasing your pension is to stop chasing the knockout and instead pursue points with early planning

World-class and elite boxers are often perceived as exuding confidence. Although confidence is crucial, there is a distinct boundary between it and recklessness.

There were times when I felt a rush of confidence as I traded blows under bright lights in fights all over the world. When this confidence was mishandled mentally, it sometimes resulted in shots being fired more forcefully than necessary, veering away from discipline in favor of hope in an attempt to deliver a knockout blow.

"Relax, Delicious, Relax You got time" was the advice I would often hear from the corner of the ring.

It's risky to load a big punch at the highest level of boxing. A shot becomes telegraphed when too much effort is put into it. All it takes for a cunning fighter to hit you on the button is a tiny opening. The battle turns against you after a single moment of impatience or emotionally motivated inactivity.

Investing can seem like a battle when it comes to finances and pension planning.

Fighting for the long haul.

The temptation to swing big is real for the younger generation, as parents and grandparents are all too aware. For the majority of Gen Z and HENRYs (high net worth, not yet wealthy), building wealth has become a pipe dream due to housing costs, inflation, and daily expenses. Housing is the most obvious indication of the squeeze. In the UK, the average full-time salary was about 39,300, and the average house price was about 300,000. This means that the average home cost was about 7.6 times the annual earnings. In contrast, in many places during the late 1990s, home prices were closer to three or four times earnings. Not only does that gap require more effort, but it also creates pressure that makes discipline more difficult to maintain.

Desperation or resignation takes over when the pressure becomes unbearable. The financial equivalent of throwing everything into one punch and hoping it lands, it causes people to act out of emotion, looking for a way out rather than a solution. This was evident during the 2021 cryptocurrency boom and meme stock frenzy, when many people chased overnight profits that would change their lives. Whether they are in and out in a matter of days or hold for years, the majority of retail investors who trade in this manner lose money.

Under that same pressure, it can be tempting to completely discount the long game and believe that saving for a retirement decades from now is useless when living expenses are pressing you. However, your instincts work against you. Just 46% of Gen Z think the state pension will still be available when they retire, according to the Pension Policy Institute. Building your own retirement fund is more important than ever because of this uncertainty.

Building wealth is less thrilling but far more successful than chasing a knockout, according to research and history. The majority of self-made millionaires are regular people who live below their means and are aware of the consistent game of investing, according to US-based research from Thomas Stanley and William Danko's book The Millionaire Next Door.

In the UK, housing and pensions account for the majority of household wealth. These are asset-based forms of wealth, where growth is primarily driven by compounding over time and price appreciation rather than just wages. One of the easiest ways to climb that asset ladder is through a pension. Because time eventually transforms those tiny steps up the ladder into leaps, the younger you are, the more it feels like you are strapped to a jetpack as you climb it.

Risky bets are outperformed by small, steady actions repeated over time. Herein lies the power of compounding, which Albert Einstein famously referred to as "the eighth wonder of the world."

I prefer to think of compounding as a sparring partner. We were working quietly behind closed doors while there was constant chatter outside about how great I was as a fighter or how I did in my most recent fight. There are no opinions or headlines. Just putting in a lot of effort each day to grow and gain strength.

Why don't we discuss compound interest and pensions?

It makes sense to make the most of your age and, if you can, increase your pension contributions. Nobody talked about pensions when I was boxing, and retirement seemed like something that only other people experienced. Then I saw a statistic that completely altered my perspective.

If you invest £200 per month between the ages of 20 and 30 and then stop, you will have invested £24,000. By the time you are 65, that amount will have grown to about £370,000, assuming a 7 percent annual growth rate. Let's take a friend, Steve, who begins investing at age 30 and continues to do so until age 65. Steve ends up with roughly 360,000, slightly less than your pot, even though you stopped contributing 35 years ago, even though he contributed 60,000 more than you overall. That's not even accounting for the government top-ups that your contributions generate over time.

This is precisely the kind of figure that ought to alter how urgently you handle your own pot, since the state pension is gradually becoming something we are not depending on. Compounding is more powerful than a clean uppercut.