WORKING from home could bag you an extra £100,000 for your pension.
Research by wealth firm Nutmeg found the average UK adult who has worked from home since the start of the Covid-19 pandemic has saved an average of £241 a month.
Working from home can boost your pension pot[/caption]
Cutting costs on commuting and pricey lunches and lattes has meant many workers have been able to save for the first time.
Nutmeg says stashing some of that extra cash in your pension could boost your retirement income by £1,538 a year – as long as you keep up the good habit now restrictions have ended.
A survey of 2,000 Brits found 14% have been putting more money into their pension in recent months. A further 15% are planning to increase the amount they put into their pension now that restrictions have ended.
More than half of those aged 18-34 say they are taking pension planning more seriously after saving more, and 39% of this age group have been using spare time in lockdown to research their pension options.
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How much do you need for retirement?
The current State Pension pays out £179.60 a week to retirees if you get the full amount – equivalent to around £9,350 a year. But employees are also automatically opted into a pension scheme with their employer to help boost their pension.
Currently, workers who are aged 22 and over and earning more than £10,000 a year pay 5% of their qualifying earnings into a pension, and their employer puts in an extra 3%.
That means if you earn £10,000 a year you’ll be contributing £15.67 a month to your pension, with your employer adding £9.40 – a total of £25.07 a month. Over 30 years that could get you a pension pot of £25,000 if your money grows at 6% a year, according to our calculations.
Those earning £20,000 save £57.33 a month into a pension, and their employer adds £34.40 – a total of £91.73. Over 30 years that could get you £92,144 if your money grows at 6% a year.
Boost your pension pot
There is nothing to stop you boosting your pension pot by saving more. Nutmeg says putting an extra £128 a month into your pension could allow you to stop working at a younger age.
Saving an extra £128 a month over 30 years could add more than £100,000 to your pension pot. This is particularly important now the pension triple lock has been scrapped.
Many workplaces will pay in more than the minimum 3% – with some employers offering to match the amount you put in up to a certain amount. It makes sense to find out what this limit is and max it out if you can afford to.
Annabelle Williams, personal finance specialist at Nutmeg, said: “Covid-19 has caused extra financial strain for many people, but it’s positive that many others have been able to save money, often for the first time, or use the money freed up by not commuting or going on holiday to grow a bigger nest egg.”
Pay down debt first
Of course, not everyone has been boosting their bank balance with their extra money. Some 23% of people have been spending the extra money, while 18% have used it to pay down debt, and 19% have left the cash in their current account.
Does it make sense to save more into your pension? Not necessarily.
It’s usually better to pay off debt such as credit cards and loans before you start saving for the future. The interest charged on debt adds up quickly, so it’s best to prioritise clearing this first.
Next, you should look to build an emergency fund equivalent to at least three months’ salary before you invest any money.
A workplace pension is not the only way to save for retirement either. We recently looked at how Lifetime Isas can help boost your savings and it’s worth checking at what age you can claim State Pension.
Ms Williams added: “As social distancing rules are gradually relaxed and the temptation to spend increases, people should try to keep some of their lockdown mindset when it comes to their money and continue to set aside as much as possible for pensions or other suitable long-term investment products.”
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