You are here: Home - Retirement - Retirement planning - News -

Increasing your pension contributions by just 1% could add thousands to your pot

0
Written by:
10/02/2020
Saving into a pension has never been easier thanks to auto-enrolment but increasing your contributions by just a tiny amount can make a huge difference to the size of your pot at retirement, research shows.

New calculations from Wealth at Work reveal that increasing your pension contribution by just 1% of your salary could boost your pot by 25% – if your employer is willing to match it, and you start as early as possible.

Under auto-enrolment rules, all workers aged 22 and over who earn more than £10,000 a year, must legally be enrolled into a workplace pension scheme.

Employees must contribute a minimum of 5% of their salary, while employers are required to pay in at least 3%.

However, these are just the minimum amounts – both staff and bosses can contribute more.

Jonathan Watts-Lay, director of Wealth at Work, said: “Many don’t realise the difference a small increase in their pension contributions can make if they start in their 20s, compared with starting in their 30s or 40s; especially if their employer offers to match it.”

For example, Charlie, 25, earns £25,000. At the moment, he contributes the minimum into a pension – 5%, and his employer pays 3%. This means his pot at 68 would be worth around £124,177.

If he increased his contribution by 1% to a total 6%, an extra £250 per year would go into his pension, but the personal cost to Charlie would only be £170 due to the pension contribution being taken before tax or National Insurance are deducted

The total pension contribution is now 9%, and the pension pot value is estimated to increase to £139,699 – an increase of £15,522.

However, if his employer were to match his 1% increase, the total pension contribution would be 10%, and the pension pot value is estimated to increase to £155,221 – an overall increase of £31,044.  This is more than a 25% increase of the original pot.

Watts-Lay said: “The bottom line is that we all need to be saving more for our retirement, not just those who are retiring in the next few years.

“If you can afford to put an extra 1% of your salary into your pension, it will make a significant difference, especially if you start early, and if your employer will match it.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Santander current account shake-up: Act now

From tomorrow, Santander will double the monthly fee on the 123 Lite current account while the cashback catego...
Santander current account shake-up: Act now

Countdown to new tax charge for freelancers and contractors

Freelancers and contractors have just five months to get ready for employment tax changes that will affect how...
Countdown to new tax charge for freelancers and contractors

SEISS ‘paid out more than £1.3bn to thriving businesses’

The Resolution Foundation claims the government’s £12.7bn Self-Employment Income Support Scheme (SEISS) has be...
SEISS ‘paid out more than £1.3bn to thriving businesses’

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Money Tips of the Week

Privacy Preference Center

Necessary

Advertising

Analytics

Other

Read previous post:
Storm Ciara: your refund, cancellation and compensation rights

Storm Ciara unleashed her power over the weekend with winds of 70mph and torrential rain grounding flights, causing rail travel...

Close