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Sign up now3 pension changes that could grow your pot by more than £200,000
From higher employer contributions to investing pay rises, we break down how pension tweaks can add up over time
If you’re looking to give your pension a lift, small changes can make a big difference over time.
An analysis by Interactive Investor found a few practical tweaks could increase the pension pot of an average earner by more than £243,000 over a 40-year career.
Here, we explain how you can make the most of your pension savings.
1. Switch to an employer with better perks
One of the biggest influences on your pension pot isn’t your own contributions – it’s what your employer pays in.
Your employer must pay 3% as a minimum, although it may choose to contribute more.
The investment platform Interactive Investor says if you earn £35,000 and move to an employer that offers a 5% contribution (rather than 3%), you could boost your pension by £116,700 over the course of your career.
Of course, changing jobs purely for a better pension won’t be possible, or practical, for everyone. But Camilla Esmund, from Interactive Investor, says it’s something to factor in if you’re already job hunting.
She says: ‘Not everyone is in a position to move jobs, but when the time comes, it’s vital to find out more about the company's pension. It forms a crucial part of your pay package and varies significantly between employers – some pay in just 3%, while others pay up to 15%.’
- Find out more: defined contribution pensions explained.
2. Use salary sacrifice
Salary sacrifice is an arrangement where you agree to give up part of your salary in exchange for non-cash benefits, such as pension contributions.
Because this reduces your taxable salary, you pay less income tax and National Insurance (NI), making it a tax-efficient way to boost your pension without reducing your take-home pay by as much as you might expect.
This is especially valuable for basic-rate taxpayers, who pay 8% in NI. When combined with 20% tax relief, you only need to give up £72 of take-home pay for £100 to go into your pension. Higher earners still benefit, but save just 2% in NI on income above £50,270.
According to Interactive Investor's data, someone earning £35,000 who contributes 5% of their salary and redirects their NI saving into their pension could build up an extra £27,600 over 40 years.
Not all employers offer salary sacrifice for pensions, so it’s worth checking if this is available through your workplace.
- Find out more: salary sacrifice explained.
3. Ringfence £50 from a future pay rise
It’s not always realistic to cut spending or find spare cash from your current budget, but setting aside a portion of your next pay rise is one way to boost your savings without feeling the pinch.
Interactive Investor says that paying an extra £50 a month into your pension could add nearly £99,000 to your retirement pot over 40 years.
Because pension contributions receive tax relief, the actual cost to you is less than the amount going into your pot.
If you’re a basic-rate taxpayer, the government automatically adds 20%, so you only need to contribute £40 for your pension to receive £50.
For higher-rate taxpayers, the cost is £30, and for additional-rate taxpayers it's £27.50, although you may need to claim the extra relief through your tax return.
If you’ve already made the most of your employer contributions, you can either top up your workplace pension or pay into a self-invested personal pension (Sipp), which offers more control and flexibility.
- Find out more: pension tax relief calculator.
What these changes could be worth
Interactive Investor's data shows someone earning £35,000 could build an extra £243,200 into their retirement pot across 40 years.
The figures show how much each step could add individually and how the gains increase for higher earners following the same approach.
| Pension growth from each action | £35,000 salary | £60,000 salary | £100,000 salary |
|---|---|---|---|
| Move to employer paying 5%, rather than 3% | £116,000 | £197,700 | £328,200 |
| Use salary sacrifice and reinvest saving | £27,600 | £15,800* | £27,700* |
| Pay £50 a month from future pay rise | £98,900 | £98,900* | £98,900* |
| Total | £243,200 | £312,400 | £454,800 |
Assumptions: Calculations based on 40 years of contributions, assuming 5% annual investment growth net of fees; employer contributions are based on full salary; salary sacrifice assumes reinvested NI saving in pension with 20% tax relief; investing part of pay rise assumes £50 increased contribution which is then increased 2% each year in line with inflation.
*Higher and additional-rate taxpayers can claim extra tax back on personal pension contributions via self-assessment.
Other ways to boost your pension
If these steps aren’t right for you, there are some other practical ways to get more from your existing pensions.
Track down lost pensions
If you’ve moved jobs a few times, it’s worth checking whether you’ve left any pensions behind. The government estimates more than £27bn is sitting in forgotten pots.
Many free tools are now available to help you search. In addition to the government’s Pension Tracing Service, providers such as AJ Bell, Aviva, Gretel and Standard Life offer services that can help identify lost pensions using your employment history and National Insurance number.
- Find out more: how to find lost pensions.
Compare the fees you’re paying
Pension charges can make a surprisingly big difference to your long-term savings.
For example, paying 0.75% in fees instead of 0.25% could cost you thousands of pounds over the course of your career.
You can check what you’re paying by looking at your annual pension statement or contacting your provider directly.
- Find out more: why small pension pots could be costing you.
Understand where your pension is invested
Most workplace pensions place you in a default fund, which is a pre-selected mix of investments chosen by your provider.
These funds are designed to suit the average saver and typically shift into lower-risk assets as you get closer to retirement. But default funds don’t always deliver the best returns.
It’s a good idea to log into your pension account to see how your fund is performing and whether your current setup still suits your needs.
- Find out more: do you know where your pension is invested?
