Millions of Brits have a workplace pension scheme, which allows employees to save for their retirement outside of the state pension. According to Wealth At Work, individuals can significantly increase the value of their pension pot by increasing their contributions by just 1% per month. Since 2012, employers have been required to automatically enroll workers into pension schemes, with a minimum contribution of 8% – 5% from the employee and at least 3% from the employer.
By increasing both the employee and employer contributions by 1%, the value of a workplace pension pot at retirement can receive a 25% boost. For example, a 25-year-old saving 5% of a £20,000 salary into a workplace pension would have an estimated pot value of £99,341 upon retirement. However, by increasing their contribution to 6% and getting their employer to match this increase, their total nest egg could reach £124,177, an increase of £24,836. The additional cost would be just £12 more per month or £136 per year.
Similarly, someone saving 5% of a £30,000 or £40,000 salary into a workplace pension could significantly increase their retirement fund by increasing their contributions by just 1%. For individuals earning £30,000, the boost could be £37,254, resulting in a nest egg of £186,265. And for those with a salary of £40,000, the potential boost is £49,670, resulting in a total nest egg of £248,353.
It is important to note that employers are not obligated to match increased contributions, so individuals should check with their employer if this is an option. Even if the employer doesn’t match contributions, individuals can still choose to save more of their income for retirement.
The significance of small increases in pension contributions, especially for young people starting in their 20s, is often overlooked. Saving an extra 1% now with a matching employer contribution can result in a 25% larger pension pot at retirement. So, increasing contributions early on can make a lot of sense.
Source: Wealth At Work