How much could you save into your pension?

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Are you really saving as much as you could into your pension? For many, if not most, the truth is that they could increase their monthly contributions without it materially changing their lives.

If you decided to really prioritise pension saving, then you’d probably surprise yourself at just how much you could put away.

There used to be a BBC 2 programme called: Pay Off Your Mortgage in Two Years, and the couples in the series had to try and do just that. They made paying off their debt their number one financial priority, and some of them succeeded.

Sacrificing every little creature comfort for the sake of paying off your mortgage is not going to appeal to everyone, but the point is that if you set your mind to specific financial goals, you can achieve extraordinary things.

Put your money to good use when it comes to pension saving

By exerting a little more control over your personal finances, you can align them much more closely to both your present and future needs, and go a long way towards making yourself financially secure in later life.   

The annual allowance and the lifetime allowance rules set limits on the tax breaks available for the pension contributions you make in the course of a year and over your entire life. If you go over these limits you can incur charges, but for the majority of pension savers they don’t come into play.

The important thing to focus on, therefore, is contributing as much as you can afford to your pension, so that you can build up as big a nest egg as possible. And it really is true that a little goes a long way when it comes to pension saving.

If, for example, you lost £1 every day, would you notice it? Over a week that’s less than a a few lattes or a couple of drinks in a bar. Let’s imagine the money wasn’t lost and each year £365 went into your pension, equating to £456.25 after basic tax relief is added.

If you started putting this extra money into your pension from the age of 25 and continued until you were 67 that would add an extra £19,162.50 to your pension pot. And if the money grew year-on-year at 4% the total would be £49,736.90. That’s almost £50,000 for the sake of a pound a day that might otherwise have found its way down the back of the couch. 

So why not take 10 minutes to think about where you spend your money and to consider if you could tighten things up a little bit? By then putting any spare cash into your pension you could get much better value out of it over the long term.

In addition to the help you get from income tax relief and potential investment growth, you may also have access to a workplace pension.

Make the most of employer contributions to workplace pensions

The government has introduced auto-enrolment, which forces employers to automatically sign up eligible employees to a compliant pension scheme.

From 6 April 2019, the rules mean that so long as you don’t opt out, employers will have to contribute a minimum of 3% of your qualifying earnings into your pension pot. This employer contribution will make a big difference to the amount you can save over the course of your career and will really boost the size of your pot.

It’s very easy to think that so long as you’re saving into a pension, it’ll be enough to pay for your retirement, but the truth is that most of us are not saving as much as we need to pay for the lifestyle we’d like.

In fact our research has found that only 12% of the UK population is on track to afford the lifestyle they want in later life.

And this is why it’s so important to make every penny count and to contribute as much as you can into your pension. Over the years it really does make a big difference.