How to boost your pension by £33,000 by paying it an annual Christmas bonus
Contributing an extra £400 into your pension pot this festive period will give the gift of compound interest and should make your retirement feel more jolly and bright
Many of us will spend hundreds - or even of thousands - of pounds this Christmas, from festive food and decorations to gifts for loved ones.
But did you know that also paying some attention to your pension pot and giving it a Christmas bonus could result in a very jolly boost to your retirement savings?
The average amount spent per person this Christmas period is expected to reach £796 across the UK, with a low of £698 in the North East and a high of £977 in London, according to Statista.
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If savers were to redirect just a quarter (£200) of this predicted spending into their pension instead by way of an additional contribution, or half of the forecast amount (£400), they could increase their pension pot by between £305 and £1,039, depending on how far off they are from retirement.
In fact, contributing an extra £400 into your pension over the next 25 years could boost your nest egg by an impressive £32,970, according to research by the pension provider PensionBee.
Becky O’Connor, director of public affairs at PensionBee, comments: “With Christmas just around the corner, it’s a great time for savers to reflect on their festive spending habits and consider whether some of that money could be redirected into their pension.
“Even contributing a small amount can see savers benefit hugely from the power of compound interest and tax incentives from the government, significantly boosting retirement savings over time. Adding a lump-sum ‘Christmas contribution bonus’ into your pension is straightforward, and your future self will thank you for it.”
If you receive a Christmas bonus at work, you could use this money to make an extra contribution to your pension. The average Christmas bonus is expected to increase by 8.3% this year to £788, according to the Global Payroll Association.
A survey by the association of British workers found that one in five (21%) are expecting to receive a Christmas bonus.
How to pay your pension a Christmas bonus
Whether it’s diverting a Christmas bonus from your boss into your pension, cutting back on a few luxuries to finance an extra pension contribution, or even re-gifting some cash from a relative into your pension pot, a festive bonus can bring some serious cheer to your retirement savings.
PensionBee explains that a one-off Christmas bonus of £400 into a pension pot could boost a nest egg by between £608 and £1,039 ahead of retirement, once tax relief and investment growth are factored in.
Christmas pension contributions are even more effective if they become regular events. A 25-year-old today could accumulate an extra £16,483 by retirement with a £200 annual Christmas contribution pension bonus.
With a larger annual bonus of £400, the figure rises to £32,970.
For those closer to retirement, a 55-year-old saving a £200 Christmas bonus each year could raise an extra £3,528 towards their retirement fund, rising to £7,056 if they are willing to sacrifice more of the Christmas trimmings and pay in £400.
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How a £400 annual Christmas bonus can turbo-charge your pension
Age
Years to retirement at 66
Amount saved every Christmas
Projected amount at retirement
Row 0 - Cell 4
25
41
£400
£32,970
Row 1 - Cell 4
35
31
£400
£23,021
Row 2 - Cell 4
45
21
£400
£14,463
Row 3 - Cell 4
55
11
£400
£7,056
Row 4 - Cell 4
Source: PensionBee. Includes the incremental 25% tax top-up from HMRC and assumes 5% investment growth, inflation of 2.5% per year and one annual management fee of 0.7% taken from the pension each year.
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Ruth is an award-winning financial journalist with more than 15 years' experience of working on national newspapers, websites and specialist magazines.
She is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times.
A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service.
Outside of work, she is a mum to two young children, while also serving as a magistrate and an NHS volunteer.
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