How to boost your pension by £33,000 by paying it an annual Christmas bonus

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.

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.