Three simple ways to boost your workplace pension by up to £243,000
Wouldn’t it be great to boost your workplace pension and get the retirement you’ve always dreamed of?
For most of us, our workplace pension forms the backbone of our retirement savings, so it’s well worth exploring ways to boost your wealth.
Below, we look at three simple ways to make the most of your workplace pension – which, combined, could increase your retirement wealth by as much as £243,000.
Check your employer’s contributions: £117k
When we change jobs, pensions are often the last thing on our minds. Yet our employers’ pension contributions are a crucial part of our pay packet.
Employer pension contributions have a huge impact on retirement wealth, making the difference between a basic or more comfortable retirement.
Yet frustratingly, the average UK employer contributes just three per cent of pay to their employees’ pension scheme, which simply isn’t enough for a decent-sized retirement pot. But some employers are much more generous than others, many contributing five per cent, 10 per cent or even 15 per cent.
“It’s crucial to look at the total reward package when considering a new job or change of employment,” says Clare Moffatt of workplace pension provider Royal London. So, before you accept that new job, make sure to check out your new employers’ pension contributions as well as your pay.
Calculations from investment platform interactive investor show that someone who earns £35,000 could boost their retirement pot by a staggering £117,000 by moving to an employer that pays five per cent into their pension, rather than the standard three per cent – assuming they earn £35,000 and pay in for 40 years.
Even if you’re staying put, it’s well worth digging out your pension paperwork. Some employers will increase their contributions if you pay in more than the standard amount, which can turbocharge your retirement savings.
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Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
Using salary sacrifice: £27k
Salary sacrifice is fantastic way to boost your workplace pension by up to £27,000, as well as reducing your tax bill. And what’s more, it’s completely free!
It works by you giving up some of your salary in exchange for pension payments – your pension payments don’t count towards your taxable pay but are paid straight into your pension. Although your pension contributions stay the same, your pay is slightly reduced for tax purposes.
While pension payments are typically free from income tax, with salary sacrifice, you also save National Insurance, which is eight per cent for basic rate taxpayers. Your take-home pay will increase by £8 for every £100 you pay into your pension once you fill in those salary sacrifice forms.
Here comes the clever bit! Using this extra tax saving to pay more into your pension is a great way to boost your long-term wealth.
By switching to a salary sacrifice scheme and paying their tax saving into their pension, someone who earns £35,000 could boost their pension by an impressive £27,000 over 40 years. This assumes they paid five per cent into their pension and achieve five per cent investment growth.
Most larger employers offer salary sacrifice, and you’ll often receive a form when you start a new job. If not, contact your HR department and check if you can change to a salary sacrifice arrangement.
Making the most of a pay rise: £99k
If you’re expecting a pay rise, it’s a great time to sit down and look at your pension contributions. Since you’re used to living on less, it’s often possible to up your contributions without a drop in your living standards.
Ms Moffatt says that “it’s a good idea to regularly review your pension savings, checking how much you have saved at least once a year. As well as showing how much is in your pension, it will also let you know if you are on track for the retirement you want.”
Even small increases in contributions can significantly boost your retirement wealth.
Contributing an additional £50 each month could increase your retirement savings by a staggering £99,000 over 40 years. This assumes you increased that £50 annually with inflation and achieved five per cent investment growth on your pension.
Combined with salary sacrifice and increased employer contributions, you could boost your retirement wealth by hundreds of thousands – and take a step closer to achieving your retirement goals.
|
Impact of changes |
Increased pension wealth at retirement |
|---|---|
|
1) Moving to an employer that pays in 5%, rather than 3% |
£117,000 |
|
2) Using salary sacrifice and reinvesting the tax saving |
£27,000 |
|
3) Investing £50 of a pay rise in your pension each month |
£99,000 |
|
Total increase |
£243,000 |
Table detail: Calculations by interactive investor. Includes several assumptions; calculations based on 40 years of contributions and five per cent investment growth, 1) compares employer contributions of 5 per cent versus 3 per cent, 2) assumes NI saving reinvested in pension with 20 per cent tax relief, 3) £50 increased contribution which is then increased 2 per cent each year in line with inflation.
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
