Generation Z and Generation Alpha workers could build pension pots worth more than £1m through minimum auto-enrolment contributions over a 45-year career, but inflation means the savings may provide far less retirement income than many expect, Murphy Wealth has argued.

Based on median earnings and long-term assumptions for wage growth, investment returns and inflation, the wealth manager estimated a pension pot could exceed £1.1m by retirement, although its value in today's money would be equivalent to around £290,000.

Murphy Wealth said the inflation-adjusted pension could last as little as 11 years without the state pension, or eight years if the full 25% tax-free lump sum is withdrawn, reinforcing the risk of relying solely on minimum auto-enrolment contributions.

The analysis follows the Pension Commission's warning that around 15 million people are under-saving for retirement. Increasing auto-enrolment contributions to a minimum of 12% of pay, as some have suggested the Pension Commission may do in its final report, could build up a pot of £1.65 million based on the same assumptions.

This would last for 17 years without any state pension, and 12 years withdrawing 25% as a tax-free lump sum during the first 12 months.

Adrian Murphy, CEO of Murphy Wealth, said: “A £1m pension sounds like it should be enough to cover a comfortable retirement. That figure – often seen as a milestone – might encourage many people to stick with the minimum contributions required by auto-enrolment, rather than choosing to increase the amount they put away each month.

“But that ignores the long-term effect of inflation. The rising cost of living means that every year your money loses purchasing power and, as these projections show, for anyone at the beginning of their pension saving journey, that £1 million could be worth not far off one-quarter of what it is today."

He urged savers not to rely on minimum contribution levels set out by the Government and to increase pension contributions where possible to improve their retirement prospects.

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