My easy rounding-up trick to boost your savings pot by £64k by barely lifting a finger

A MONEY expert has revealed their secret for boosting their savings pot by thousands of pounds.

Rounding up monthly pension contributions to the nearest £100 could increase your retirement fund by as much as £64,000.

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Just a small monthly increase can lead to bigger savings in retirement, according to new analysis from Standard Life.

That’s because you can benefit from investment growth over time.

Dean Butler, managing director for retail at the pensions firm, says one of the easiest ways to do this is to simply round it up.

He said: “Many of us now use banking apps that will automatically round up purchases to the nearest pound and put the difference into savings.

“It’s a little nudge that goes unnoticed at the time and if you’re in a position to do so, rounding up your pension contributions to the nearest round number each month can be a great way to top up your savings.”

You are automatically signed up to your workplace pension scheme through your job if you’re over 22.

It’s separate from the State Pension and the money is deducted from your salary unless you opt out.

A minimum of 8% goes into the pension – you contribute 5% and your employer pays at least 3%.

But you can pay in more than the minimum, and making the sacrifice today means in the future when you leave work your annual income from your pot will be higher.

Standard Life’s analysis finds that someone who begins working on a salary of £25,000 a year would ordinarily have a pot of £434,000 in retirement.

That’s if they pay the minimum monthly auto-enrolment contributions from the age of 22.

But, those who round up their pension contributions to the nearest £100 throughout their career, up until the age of 66, could find themselves with £498,000 – an extra £64,000.

So for this example, the worker may make a monthly contribution of £125 rounded up to £200, then the next month they might make another monthly contribution is £180 which would be rounded up to £200.

It also assumes a beginning working salary of £25,000 per year, paying 8% into a workplace pension at the age of 22, and 3.5% salary growth a year.

But do bear in mind these figures haven’t been adjusted for inflation. Plus, they also assume an annual management charge of 1%.

It’s important to note that the figures are an example only, and not guaranteed – and earning limits haven’t been applied.

But it goes to show that just a small increase now can lead to a larger saving pot for when you finish working.

Dean said: “Pensions are one of the most tax-efficient ways to save and they’re investments, so they have the potential to grow faster than cash-based savings would.

“They’re also for the long-term, so they give you a good chance of benefiting from compound investment growth, or investment growth on earlier investment growth, as the years go by.”

By putting money in your pension, it’s not just the money you’re saving – you benefit from tax relief and investment growth over the years, especially if you start early.

Tax relief means when you pay £80 into your pension, the government tops it up to £100, instead of taking the 20% tax on it for basic-rate taxpayers.

The money in your pension is invested, for example in stocks and shares, and grows over time.

Although, he did warn that there’s a “trade-off” to consider as you’ll have a bit less to spend each month.

You need to carefully consider if you can afford the added top-up.

To find out how to add more to your pension, speak directly to your employer.

There is also an Annual Allowance to consider, which is the maximum amount you can contribute to your pension each year while still receiving tax relief.

At the moment for 2023 to 2024, this stands at £60,000, as long as you haven’t already accessed your pension cash, which you can do at the age of 55 (though this is rising to 57 in 2028).

Even a 1% increase in your pension contributions – as little as £136 a year – could boost your pension pot by £25k.

You could also save more for retirement by changing how your pension is invested – and it won’t cost a penny more.

How much do you need for retirement?

The Pensions & Lifetime Savings Association (PLSA) updates their Retirement Living Standards each year, to take account of the rising cost of living.

They’re designed to help savers work out how much cash they’ll need when they stop working.

It’s important to remember that the state pension will make up part of that income. 

Retirees can start to claim the state pension at 66, though if you’re retiring after 2026 you’ll almost definitely see that minimum age rise.

But your state pension is unlikely to be enough on its own, which is why a workplace pension is so handy.

They don’t count mortgage payments or rent or any financial support you give your children or other dependents.

If you think you’ll still have those costs to meet when you retire, you’ll need to up your savings considerably.

The ‘minimum’ retirement

The PLSA’s minimum retirement living standard covers all of a retiree’s basic needs as well as having some money left over for fun.

This includes a week’s staycation each year, eating out once a month, and some affordable leisure activities twice a week – but no car.

The ‘moderate’ retirement

The moderate retirement living standard includes a two-week holiday in Europe each year and eating out a few times a month. 

Around half of single employees are estimated to be on track to achieve a minimum or moderate retirement, with couples more likely to be at the top end of this range.

The ‘comfortable’ retirement

A “comfortable” retirement includes a three-week holiday, plenty of money to spend on clothing and more money to spend on social activities such as birthdays. 

How to save for retirement

Anyone planning their retirement needs to do some careful calculations about how much they will need to afford the lifestyle they want.

A good starting point is the Government state pension age calculator, which will tell you at what age you will receive your state pension. 

Pension calculators can also help you work out how much money you need to be saving to have the pension pot you want at retirement. 

The earlier you start saving, the easier it is as your money has longer to grow. 

Make sure to keep on top of your annual statement and check your pension accounts as well.

Meanwhile, some changes are coming up to auto-enrolment rules.

Plus, an expert has revealed her secret for boosting your retirement pot by up to £128,000.

Do you have a money problem that needs sorting? Get in touch by emailing [email protected].

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This post first appeared on thesun.co.uk