How to get a £1million pension boost with your employer

New calculations by interactive investor shows how much you really earn depends on your employer’s pension contributions. Here is the difference it can make to your retirement

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(Image credit: Getty Images)

A pay rise may be one of the main perks of getting a new job but it is also worth looking at the level of pension contributions.

Employer pension contributions can boost your overall earnings and ultimately boost how much you can save for retirement.

Most companies will auto-enrol staff aged 22+ onto workplace pension schemes, with the minimum contribution from employers set at 3%.

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Calculations by by interactive investor found someone earning £35,000 is really earning £36,050, assuming their employer contributes the minimum 3%.

But your pension pot could get a further boost worth around £1 million by the time you retire if you can find an employer who contributes more than the minimum, according to analysis by interactive investor.

It argues that you could find you are being paid more than you think by taking a job with high pension contributions.

In some cases, it could even mean taking a lower salary with higher pension contributions leaves you better off in retirement, the investment platform said.

“When we move jobs, many of us concentrate on the salary we are offered but potentially miss out by leaving pension contributions out of the equation,” says Alice Guy, head of pensions and savings at interactive investor.

“But those pension contributions are key part of your pay package and potentially make a life changing impact to your long-term financial health and retirement income.”

How a pension makes a big difference to your pay packet

Pension contributions make a big difference to the size of your eventual retirement pot as it means more money being put to work on the markets.

Most employers contribute the minimum 3%, according to the Office for National Statistics (ONS).

But some workers, such as in the financial services sector, benefit from employer contributions of between eight and 10%.

Others, mainly in the public sector, get contributions worth 20%, according to the ONS.

A middle earner with an income of £35,000 benefiting from 8% employer pension contributions, would technically be earning £37,800 per year and a much higher £42,000 if they received 20% employer pension contributions.

The difference means someone earning £40,000 and receiving 3% employer pension contributions is actually earning less in total at £41,800 than someone earning £35,000 but receiving 20% pension contributions where they receive £42,000, interactive investor said.

These differences can really add up when it comes to your retirement.

Someone earning £35,000 and receiving 8% employer pension contributions could have around £287,000 more in their pension after 40 years, assuming 5% investment growth net of fees, compared with 3% employer contributions.

Similarly, if you can find an employer who will contribute 20%, you could have £979,000 more in your pension after 40 years.

That figure could be even higher as you earn more, depending on your salary.

“When you move jobs, it’s essential to ask about the employer pension contributions and work out how much extra pay you’ll be getting,” adds Guy.

“Not all employers reveal information about their pension contributions on job adverts but will be able to tell you more if you ask for details. Moving to an employer with higher pension contributions could make all the difference when it comes to achieving your retirement dreams.”

Swipe to scroll horizontally
Annual salaryReal annual earnings including 3% pension contributionsReal annual earnings including 8% pension contributionsReal annual earnings including 20% pension contributions
£35,000£36,050£37,800£42,000
£40,000£41,200£43,200£48,000
£50,000£51,500£54,000£60,000
Swipe to scroll horizontally
Additional pension wealth compared with minimum 3% contributions
Annual salaryAdditional pension wealth after 40 years on 8% contributionsAdditional pension wealth after 40 years on 20% contributions
£35,000£287,000£979,000
£40,000£330,197£1,121,006
£50,000£411,000£1,400,000

Assumptions: 5% annual investment growth net of fees, 2% increase in pension contributions each year

Marc Shoffman

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.