Britons who make small increases to their pension contributions could significantly boost their retirement savings—potentially by nearly £100,000, new research shows.
As the Government considers changes to pension rules in its Pension Review, workers have an opportunity to take advantage of potential increases to both employer and employee contributions.
A new analysis by Stocklytics found that if a 22-year-old worker earning £25,000 annually increased their pension contributions by just £20 a month, they could see their retirement pot grow by an additional £91,000.
Based on contributions of five percent from the employee and three percent from the employer, this individual would retire with approximately £184,000. However, if contributions increased to six percent from both employer and employee, their pot would grow to £275,000.
This extra percentage point would cost the individual just £21 per month, with most of the responsibility landing on the employer.
With the average UK worker earning £35,880 per year, the new contributions would boost their pension pot by £133,000, and cost the individual just £29 per month.
Based on the same contributions, Stocklytics said the average worker would have a pot of £263,000 by the time they reach 66 years old. The proposed rules could boost this pot to £396,000 by the time they retire.
For those living in London, where the average salary is higher at £44,370, the potential boost is even larger. With the current contributions, they would retire with £326,000, but under the proposed changes, they could accumulate £489,000—all for an extra £37 a month.
A Stocklytics spokesperson commented: “This research is promising for savers. Under the new proposals, the possibility of a 22-year-old worker having £275,000 by the time they retire, saved in a cost-effective and tax-efficient manner, is reassuring to the younger generation.
“It will also help show younger savers that consistent retirement planning from an early age will help them reach their long-term goals.”
However, they noted: “It is important for all pension savers to be aware of any fees attached when saving for their retirement, as even the smallest of fees can cost thousands over the long term.
“Pension providers need to ensure their fees are transparent and widely available so savers can make informed decisions.”
