A MONEY expert has revealed how a simple savings tweak can boost your pot could boost your pot by £108,000 when you retire.
Adjusting your pension payments by a small percentage could lead to the hefty increase, according to new analysis by Standard Life.
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The savings experts have revealed that by topping up pension contributions by just 2% more over the course of a career, your pot could go up thousands of pounds.
Dean Butler, managing director for customer at Standard Life explained that if you’re able to save into a pension and increase your contributions above the standard levels “your future self is likely to thank you for it”.
The standard contributions to a workplace pension for an employee are 3%, and 5% from an employer.
So, someone who began working full-time at 22 with a salary of £25,000 and paid the standard monthly auto-enrolment contributions would get a total retirement fund of £434,000 at the age of 66.
But by simply increasing your monthly contributions to your work place pension to 5%, you’d end up with £542,000 at retirement age.
That’s a whopping £108,000 increase.
Mr Butler said: “It’s amazing to see how a relatively small increase in contributions can significantly boost the pension you retire on by tens of thousands of pounds.
“While pension payments may not be the top priority when you begin your career, or when finances are feeling squeezed, it will pay off in future.
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“If your finances and your circumstances allow, even a slight increase in the contributions you make to your pension, will help boost your retirement outcome.”
Of course, making higher contributions would have an even bigger impact on a retirement pot – but even just a 1% increase in contributions would produce £54,000 of additional savings.
Starting your pension as early as possible and leaving it to grow means compound interest will build each year.
When combined with increased monthly contributions, it can have a big effect on the amount of cash you can retire on.
“For those in a position to do so, consistently paying into a pension from as early an age as possible and topping up payments, especially in your 20s, 30s or early 40s, can make a massive difference over time,” Mr Butler added.
In some cases, employers will also match the contributions you make, giving your pot a further boost.
The government will usually add money to your workplace or personal pension in the form of tax relief.
For a basic rate taxpayer, every £80 of pension contributions gifted to you will have another £20 added on top to make £100.
It’s important to note that even if you’re already quite far into your career, adding a little extra to your fund each month will help.
If you’re unsure how much you can top up by it’s best to consult experts and make sure you can afford the increase of course.
What is auto-enrolment?
Auto-enrolment is when you’re automatically placed into your workplace pension scheme, with your contribution deducted from your pay packet.
Bosses have had to automatically enrol staff into pension schemes since October 2012 to get workers saving for their golden years.
The only exception is if you’re under the age of 22 or earn under £10,000, in which case you have to ask to opt in.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
Crucially, the contribution you make as an employee is deducted before tax – so the actual amount you’re putting away is less than it sounds.
For example, if you pay 20% tax on your earnings, and your pension contribution is £100, this only really costs you £80 as this is how much that amount would have been worth after tax.
While opting out of a workplace pension would increase your monthly salary, it’s best to only do this as a last resort, as you’ll have less in later life
Meanwhile, here’s the little-known bank account that could help you retire early.
Plus, savers could be missing out on hundreds of thousands by not making a key move ahead of retirement.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
