Pension savers can boost their contributions by many thousands of pounds by just a small increase to their contributions.
Calculations from PensionBee found a person on a £30,000 salary who pays an eight percent monthly contribution and who is on track for a pension pot of £242,846, could boost this to £273,179 by upping their contributions to just nine percent.
This assumes one percent salary increases during their career and typical investment growth. Becky O’Connor, director of Public Affairs at PensionBee, said: “Marginal gains theory really comes into its own with pensions.
“Small improvements in your contributions can make a huge difference to your overall pot size when you retire and the earlier in working life you make them, the better, thanks to the power of compound returns.”
The group also urged pension savers to check what amount they are on track to receive when they retire. PensionBee has a calculator tool to help a person work this out.
Ms O’Connor said: “It’s a good idea to add up how much you already have across different pensions and if they grow by a realistic amount before your planned retirement date, how much you are likely to have when you retire.
“Then you will know if you can carry on as you are or if you need to think about increasing contributions. Remember that stock market returns can affect your pension outcome too and forecasts are just good estimates based on past performance.”
The experts also encouraged people to check they know what type of pension they have, and whether it’s a defined benefit or defined contribution scheme.
Defined benefit schemes pay out a set amount based on an individual’s earnings These are common in the public sector and sometimes still offered by some large private employers.
Defined contribution schemes are now far more common, with a pot created by the worker and their employer’s contributions, to form a pot they can eventually access for retirement.
Another consideration is how the tax works for different schemes. With net pay schemes, the amount of tax you owe is calculated after your contribution is taken from your pay.
There is are also relief at source schemes, where your pay is taxed as normal and your pension contribution is taken out after you have been taxed and your provider claims basic rate tax relief on your behalf and adds this to your pension.
Higher and additional rate taxpayers using relief at source schemes must claim their extra tax relief themselves, via their tax returns.
Ms O’Connor said: “It’s amazing how easy it is to go through your entire working life without ever actually knowing how your pension works.
“But not understanding the type of scheme you have or how it works can leave you at risk of missing out on free cash, such as more tax relief or lower tax bills.”
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