How to boost your pension pot by over £100,000

Stubborn inflation is driving up the cost of retirement, making it more important than ever to think about ways to boost your pension savings. 

While purchasing National Insurance credits can help plug the holes in your state pension, topping up your private pension contributions by even a small percentage over the course of your career could lead to tens of thousands more pounds in retirement. 

And that’s not the only plus side to increasing your pension contributions – doing so could minimise your chances of moving onto a higher tax bracket. 

The government recently scrapped the cap on the pensions lifetime allowance, which could also encourage workers to increase their pension contributions. 

How to boost your pension pot

Data from Standard Life shows that topping up your pension contributions by just 2% over the course of your career could lead to a boost of £108,000 in retirement. 

The analysis showed someone who began working full-time with a salary of £25,000 per year and paid the standard monthly auto-enrolment contribution of 3%, with a 5% contribution from their employer, from the age of 22, would have a pension pot worth £434,000 aged 66. 

But if they increased their monthly contribution by just 2%, they would accumulate £542,000 – a £108,000 increase. Even a 1% increase would lead to a £54,000 boost for this worker’s  pension pot. 

An employee who boosted their contributions to 8% would benefit from a £271,000 increase to their retirement pot. 

The data is calculated based on a 3.50% salary growth per year, and and yearly investment growth of 5%. 

It shows how savers who know to put money into their pension pot early can benefit from the magic of compound interest. The longer your money is invested, and the more you contribute, the more it will grow over the course of your career. 

“For those in a position to do so, consistently paying into a pension from as early an age as possible and topping up payments, especially in your 20s, 30s or early 40s, can make a massive difference over time,” says Dean Butler, managing director for customer retail investing at Standard Life.

How else can you boost your pension?

The scrapping of the lifetime allowance means employees can now save however much they want into their pension without being taxed. 

It should be noted, however, that the sum you can take out of your pension without being taxed is capped at £268,275, or 25% of the previous lifetime allowance limit of £1,073,100. 

That said, there are ways to take advantage of the new, more generous pension allowances. 

One way is to make sure you’re rolling over unused allowances. The pensions annual tax-free allowance increased to £60,000 from £40,000. Workers will be able to pay £60,000 plus £40,000 from the last two years into their pension. 

So if you didn’t use up your allowance over the last couple of years, this could be a way to boost your pension pot. 

You could also consider delaying taking your state pension. Your state pension will increase every week you defer, as long as you do so for at least five weeks. 

If you reached state pension age before April 2016, your state pension increases by 1% for every five weeks you defer, or 10.4% for every year. The amount will be paid with your regular state pension. 

If you reached the state pension age after April 2016, your pension will increase by 1% for every nine weeks you defer, or 5.8% a year. This is a less generous allowance, but it would still be an increase of £203.85 a year assuming you get the full new state pension.