Will it really improve my retirement if I increase my pension contributions by 1% – or should I just enjoy the money now?

When retirement is decades away, it’s understandable that many people near the start of their working lives don’t give a lot of thought to exactly how much of a difference the amount they pay into their pension will make when they finally take it.

Increasing your pension contribution by 1% might sound so small as to be insignificant, making it tempting to choose to enjoy more of your hard-earned money today rather than putting a little more of it away for years to come. But is that really the case? What difference would putting an extra 1% into your pension actually make?

The simple answer is ‘quite a lot’. Let’s assume that you currently contribute 3% of your salary every year to your pension until you retire, and you increase that to 4%. Someone at the start of their career aged 20 and earning £20,000 contributing 3% would be paying in £600 annually, giving them an estimated pension pot of £139,051 if they retired at 67. If they upped their contribution to 4% that would mean paying in £800 per year and an estimated pension pot at 67 of £185,401, giving them an extra £46,000 to enjoy in their retirement.

Even increasing your payments later in life can have a significant impact. Someone aged 50 and earning £35,000 would pay £1,050 to their pension every year making a 3% contribution, or £1,400 if they made a 4% contribution. As a result, their pension pot would be over £10,000 bigger at age 67: £31,367 compared to £41,823.
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