Britons could boost pension pots by £73k thanks to retirement hack but savers need to 'act early'

The analysis demonstrates how early action in pension saving can lead to significant improvements in retirement living standards through the power of compound growth and tax relief.

Ian Futcher, financial planner at Quilter, noted that automatic enrolment thresholds have been maintained amid changes to employer National Insurance Contributions and ongoing financial pressures.

"While freezing the thresholds provides stability for both employers and employees it still a missed opportunity to drive higher contributions that could secure better retirement outcomes for millions of workers," he said.

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The current system puts responsibility on individuals to ensure adequate retirement savings. "While AE has transformed pension saving, those relying solely on minimum contributions may find themselves falling short of the retirement they desire," Futcher warned.

According to the pension expert, small increases in contributions to pension savings could be "the difference between a retirement of necessity and one of choice and comfort."

Under minimum contribution levels, someone starting pension savings at age 20 and earning the average UK salary of £34,788 would accumulate a pension pot of £211,240 by retirement at 67.

This would provide an annual retirement income of £26,287, according to Quilter's analysis. This basic level of saving would only meet the PLSA's minimum retirement living standard.

Such a retirement lifestyle would allow for £50 on weekly groceries but would not support car ownership. Holiday options would be limited to basic UK breaks under this scenario.

The figures highlight the potential limitations of relying solely on minimum pension contributions throughout a working life. The impact of increasing pension contributions varies significantly depending on when action is taken, the analysis shows.

A five per cent increase in contributions from age 35 would boost the retirement pot by £73,118, resulting in a total fund of £284,358.Starting the increased contributions at age 45 would add £44,585 to the pot, creating a total fund of £255,825.

The annual retirement income in this particular scenario would be £29,408. Delaying the increase until age 55 would add £21,087 to savings, resulting in a final pot of £232,327.

This later start would provide an annual retirement income of £27,763. The figures demonstrate how earlier action leads to substantially better outcomes, with the age 35 increase generating more than three times the additional savings compared to starting at 55.

These scenarios highlight the significant impact that timing has on the effectiveness of increased pension contributions. "These figures underline the importance of acting early to maximise the benefits of compound growth, tax relief, and potential employer matching contributions," said Futcher.

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"These figures underline the importance of acting early to maximise the benefits of compound growth, tax relief, and potential employer matching contributions," said Futcher.

He emphasised how transformative evolving automatic enrolment could be for retirement outcomes. The analysis demonstrates that early intervention in pension planning can lead to significantly improved retirement lifestyles.

"Until reforms to raise minimum contributions are enacted, it's essential that workers regularly review their pension contributions and take proactive steps to secure the retirement lifestyle they envision," Futcher added.

Regular pension contribution reviews are crucial for ensuring adequate retirement savings, according to the analysis. The research shows that proactive pension planning can help bridge the gap between basic and moderate retirement living standards.