Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
An account already exists for this email address, please log in.
How cancelling unused direct debits could boost your pension by £37,000
A new year refresh of your spending could save you money and help boost your pension pot.
Cutting unused direct debits may be a popular new year’s resolution to boost your finances but it may also be good for your pension, research suggests.
The new year is a good time to review your spending. A survey by Hargreaves Lansdown found 24% list saving more as a top new year’s resolution, while 9% want to put more into their pension.
Cancelling unused regular payments such as gym memberships or streaming subscriptions is a popular way to achieve these aims, saving money and freeing-up cash.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
By putting the extra cash from cancelling wasted direct debits towards your retirement savings, you could end up boosting your pension pot by up to £37,000, research by Standard Life suggests.
Mike Ambery, retirement savings director at Standard Life, said: “Unused direct debits have a habit of quietly draining our bank accounts in the background.
“The new year is often a time people focus on their physical health, but it’s also the perfect moment to think about your financial wellbeing too. Redirecting just a few of those forgotten payments into your pension could make a meaningful positive impact to your financial future.”
How you could boost your pension by scrapping unwanted direct debits
Standard Life analysis has found that someone who begins working at age 22 with a salary of £25,000 and pays the minimum monthly auto-enrolment contributions could build a total retirement fund of £210,000 by the age of 68.
However, that could be boosted by diverting money from wasted direct debits.
Redirecting £39 of unused monthly direct debits into a pension – roughly the equivalent of leading streaming services such as Netflix and Disney+ at £18.99 and £14.99 respectively today – could increase the projected fund to £247,000.
That is £37,000 more in today’s prices, according to the research.
The benefit could be even greater for those with more direct debits on the go. Someone who spends double the amount on wasted direct debits – £78, roughly the equivalent of an average UK gym subscription (£47.24), premium video streaming (£18.99) plus premium music streaming (£12.99), could see a boost of £73,000 in today’s prices, Standard Life said.
Ambery warns that it is important to double check terms and conditions before cancelling any direct debits or subscriptions to avoid potential penalties or impact on your credit score.
He added: “If your retirement is decades away, pensions might not feel urgent but small changes made early on can have an outsized impact thanks to tax relief and the potential power of compound investment growth. A financial reset in January can make a meaningful difference to the income you’ll have in later life.”
Swipe to scroll horizontally
Total retirement fund at age of 68 with starting salary £25,000*
Minimum contributions (5% employee, 3% employer) from 22 years old, 3.5% salary increase, no additional contributions
Minimum contributions (5% employee, 3% employer) and 3.5% salary increase, plus £19.50 a month additional contribution from age 22 (roughly equivalent to one of the leading streaming services plus a leading delivery service)
Minimum contributions (5% employee, 3% employer) and 3.5% salary increase, plus £39 a month additional contribution from age 22 (roughly equivalent to two leading streaming services)
Minimum contributions (5% employee, 3% employer) and 3.5% salary increase, plus £78 a month additional contribution from age 22 (roughly equivalent to average UK gym membership, leading streaming service and leading music streaming service)
£210,000
£228,000
£247,000
£283,000
+£18,000
+£37,000
+£73,000
How to boost your pension contributions
The typical annual cost of a comfortable retirement is £43,900 and analysis by Quilter suggests retirees would need a pension worth £738,000 to generate this level of income.
Check the value of your pension to help work out how short you are of your own target so you can assess how much more you need to put away.
Ambery said: “Many people have only a vague idea of how much is sitting in their pension. Taking a few minutes to check your latest statement – or log in online – can be eye-opening. Once you know where you stand, it’s much easier to judge whether you’re on track or need to make changes. Pension calculators can also help turn today’s savings into a clearer picture of your future income.”
It is also worth tracking down old pension pots to see if it is worth combining to save on fees and maximise performance.
Ambery added: "Just like it’s easy to lose track of time between Christmas and new year, it can be easy to lose track of your pension plans.
"Make sure you know where to find your old plans. You can use the government’s Pension Tracing Service to help you hunt down any you might’ve lost track of.
“Once you’ve found them, keep your paperwork and pension admin organised and in a safe, easy-to-access place. Staying on top of this now will save you time and stress later.”
Experts suggest automating your contributions to make it as easy as possible.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “If you want to build your pension, consider your monthly contributions.
“Just do what you can afford, and set it up to come out of your account before you have a chance to miss it – so you automatically do the right thing every month. You could be surprised at how your nest egg builds. If, for example, you were to invest £100 a month for ten years, and have average growth of 5%, you’d be sitting on £15,528.”
Sign up for MoneyWeek's newsletters
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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.
