Savers who contribute an extra 1% of their salary to their pension pot could retire with almost £60,000 more than those who don’t.
Figures from Fidelity show how upping your pension contributions can bring significant rewards.
Auto-enrolment, which came into effect in 2012, means more people are saving for retirement than ever before. But there is widespread concern that people are still not saving enough to guarantee them a comfortable retirement.
The minimum contribution levels for auto-enrolment increased in April, so workers now put aside 3% of their salary with a further 2% contribution from their employer. This is set to climb to 5% and 3% respectively in April 2019.
Fidelity says those who can afford to save more could be significantly better off by the time they retirement. A 30-year-old earning £30,000 could save an extra £58,273 by the time they retire at age 68, by contributing an extra 1% of their salary.That’s the equivalent of just £6 a week, and less when tax relief is considered.
Those who could increase their contributions by 2% could boost their retirement savings by over £116,000. That’s based on the assumption that your salary increases by 3.75% a year and you achieve a 5% annual return on your investments.
While the impact is greatest if you start young, upping your contribution in middle age can still make a valuable difference. A 40-year-old earning £40,000 could boost their pension pot by £37,169 by upping contributions by 1%, and by £74,339 if they contributed an extra 2% of their salary.
Many workers fear they have left it too late to start saving for retirement, but the figures show that even those closer to retirement can feel the benefit of raising their contributions. A 50-year-old earning £50,000 would have £19,415 or £38,829 extra at retirement by contributing an extra 1% and 2% of their salary respectively.
Ed Monk, associate director at Fidelity International, says: "None of us really know how long we’ll live or what spending demands will be placed on us during retirement, which could last several decades. Then there’s the unpredictability of financial markets, which will also partly determine the income we have to live on in retirement.
"With all that uncertainty, it really does make sense to save as much as you can afford into your pension so you can give yourself the best chance of enjoying a comfortable retirement. The good news is that even the smallest increases can give your retirement savings a massive boost."
This article first appeared on our sister site Money Observer.