Remote working has become a political battleground with some calling for a post-pandemic return to the office while others argue for the flexibility of working from home. Now new analysis weighs in with the cost to our retirement – working from home could in fact could put an extra £160,000 or more into your pension.
While the debate around the pros and cons of remote work rages on, savings made from working from home and not commuting could lead to a significantly bigger retirement income.
Most people are not saving enough into their pension. Millions are hitting retirement with just £3,650 a year in private savings, according to a recent study. And while the average saver wants more than £30,000 a year to live on in retirement, many pensioners face running out of money after just 11 years.
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Employees who work from home even just a couple of days a week and funnel the commuting cost savings into their pension instead could see a significant uplift, according to the analysis by Standard Life.
Mike Ambery, managing director for workplace pensions at Standard Life said: “With most UK adults currently under-saving for retirement, it’s never been more important for people to consider when and how they can top up their pension to maximise their retirement income.”
“There’s an ongoing discussion around the right balance between home and office working, and the needs of both businesses and individuals differ. However, it’s worth considering how the financial side of different working setups can influence longer-term goals like retirement.”
How much could hybrid working save you?
The high price of rail and tube fares, as well as the costs of running a car, mean many people are out of pocket before they even get to work.
Commuters who spend five days a week in the office pay an average of £3,454 per year to get into work by train, according to SpareMyTime. In some places in the UK, like London, this will be considerably higher.
Those who have the opportunity to work from home three days a week, could typically reduce the cost of commuting to £1,381.60 on average – saving £2,072.40 per year.
If they put these savings into their pension, the impact at retirement could be hundreds of thousands of pounds.
Based on the average commuter cost in Manchester, if someone worked from home three days a week and put those savings into their pension, they could build up an additional £117,000 in their pension pot by the time they retire.
Glasgow commuters could save an extra £109,000 and London commuters could save £236,000.
The impact of hybrid working on pension savings
Take the example of someone working full-time, post-pandemic, with a salary of £25,000 a year and paying the minimum 8% total monthly auto-enrolment contributions from the age of 22.
They could have a retirement fund of £210,000 by the age of 68, allowing for 2% inflation over the period, Standard Life analysis has found.
However, if someone with a hybrid role chose to pass on their £2,072.40 commuter savings over the course of their career, they could build up as much as £370,000 in their pension pot by the age of 68 – £160,000 more.
Those that save on the commute by working from home more frequently could generate an even larger pot, if they passed these costs into their pension.
For example, someone working from home four days a week from age 22 to age 68 could boost their retirement pot by £213,000.
Remote workers doing the full five days a week, with the savings invested in a pension, could grow their retirement nest egg by an extra £266,000.
But it’s not just younger workers who can benefit from remote working – over 50s can reap the rewards too.
Catherine Foot, director of Phoenix Insights, Phoenix Group’s longevity think tank, said flexible work can be a game changer in helping workers balance employment alongside caring responsibilities, or to better manage their physical or mental health.
“Having flexibility over the location and hours worked is particularly important to employees aged 50 and over, playing a key role in helping them think differently about when and how they work, save and retire.
“This could make a vital difference in ensuring they are able to stay in work for as long as they need or want to, reducing the likelihood of them falling out of the workforce, enabling them to save for their retirement.”
No additional contributions, saving from age 22 | £690.80 a year additional contributions from WFH 1 day a week, age 22 - 68 | £1,381.60 a year additional contributions from WFH 2 days a week, age 22 - 68 | £2,072.40 a year additional contributions from WFH 3 days a week, age 22 - 68 | £2,763.20 a year additional contributions from WFH 4 days a week, age 22 - 68 | £3,454 a year additional contributions from fully remote working, age 22 - 68 |
£210,000 | £263,000 | £316,000 | £370,000 | £423,000 | £476,000 |
| +£53,000 | +£106,000 | +£160,000 | +£213,000 | +£266,000 |
Source: Standard Life. *Assuming 3.5% salary growth per year, and 5% a year investment growth.
Standard Life’s Ambery said: “Since the pandemic, flexible working options have given workers a number of opportunities, including the ability to save on their commuting costs. While it’s tempting to use any savings to help with the short-term, directing them into your pension could have a really powerful impact over time.
“Our calculations highlight how working from home for even one day a week could make a huge difference to your eventual pension pot if you were to pass those savings on in extra pension contributions over the course of a career, thanks to the power of compound investment growth.”
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