Basic rate tax payer, aged 25, earning £20,000 per year could increase their pension by 25% by paying 1% more.
According to research* from WEALTH at work, a leading financial wellbeing and retirement specialist, 1 in 3 (33%) employees think they won’t be able to afford to retire at all due to increasing costs. Whilst 8 in 10 (83%) are concerned the cost of living crisis will mean they will have to work longer before retiring to make up for a shortfall in savings.
However, many don’t realise the significant difference a small increase in your pension savings can make. This is especially true if your employer is matching any additional contributions.
For example, someone in their 20s, saving an extra 1% a year with their employer matching this, may be able to increase their pension pot in retirement by 25%.
WEALTH at work has created some examples to demonstrate the significant difference small increases to your pension savings can make. The examples are based on a basic rate tax payer earning either £20,000, £30,000 or £40,000 per year. They are all 25 years old and plan to retire at age 68. They are paying 5% of their salary into a pension via a salary sacrifice arrangement, and their employer is paying 3%.
Example 1: Sam [1] – Basic rate tax payer, earning £20,000 per year
The employee increases pension contributions by 1% of salary which is matched by the employer. The cost to the employee of this increase in contribution is a reduction in take home pay of less than £12 per month (£136pa).
The impact on the employee’s pension pot is that the estimated pension pot value at retirement is increased by 25%, from £99,341 to £124,177.
Example 2: Paul [2] – Basic rate tax payer, earning £30,000 per year
The employee increases pension contributions by 1% of salary which is matched by the employer. The cost to the employee of this increase in contribution is a reduction in take home pay of £17 per month (£204pa).
The impact on the employee’s pension pot is that the estimated pension pot value at retirement is increased by 25%, from £149,011 to £186,265.
Example 3: Petra [3] – Basic rate tax payer, earning £40,000 per year
The employee increases pension contributions by 1% of salary which is matched by the employer. The cost to the employee of this increase in contribution is a reduction in take home pay of less than £23 per month (£272pa).
The impact on the employee’s pension pot is that the estimated pension pot value at retirement is increased by 25%, from £198,683 to £248,353.
Jonathan Watts-Lay, Director, WEALTH at work, comments; “It’s very concerning that many people are worried that they will never be able to afford to retire. With increasing costs, it is completely understandable why some may think that saving for retirement isn’t a priority. However, it’s important to recognise that whilst finances may be tight now, stopping or reducing your pensions savings could have a dramatic impact on future retirement plans.”
He adds; “When speaking to young people, many don’t realise the huge difference a small increase in their pension contributions can make if they start in their 20s, compared with starting in their 30s or 40s; especially if their employer offers to match it. Once we point out that saving an extra 1% now with their employer matching this can result in 25% more in their pension pot at retirement, saving a bit more now makes a lot of sense.”
He continues, “Small increases can have a significant impact on your pension savings, but small reductions in your pension savings can also make a huge dent.”
Watts-Lay adds; “Many workplaces are now offering financial education and guidance to help employees understand how they can make the most of their finances now and for the future.”
*The research was carried out by Opinion Matters between 13/4/23 and 17/04/23. 2025 UK adults aged 22+ in full time employment were surveyed.