My simple trick to ‘boost’ savings and turn just £180 into £44,000 – but you need to act now
SAVVY savers could benefit from an extra £44,000 if they start watching their small change at a young age.
Pensions expert Robert Cochran has revealed an easy hack you could use to boost your pension by £44,000 and you will barely notice the money leaving your account.
Data collected by Lloyds Banks shows that someone who rounded up the spare change from their purchases and put it into a pension could have a boost of around £44,000 by retirement age.
The average person saves around £180 through Lloyd’s Save the Change challenge which rounds up day-to-day spending and collects it as savings.
If that £180 was paid into a pension it would immediately get a tax benefit and you’d see £225 per year invested rather than the initial amount put in.
If you start doing this from 20 years of age and retire at 65 you would have saved £44,414, as a 30-year-old would have £25,071 in the same time, a 40-year-old £13,083 and a 50-year-old 35,827.
The calculations assume the amount saved goes up by 2.5% per year and that the growth of the fund is at 4% after charges.
But it just goes to show that even saving a small amount of money sooner rather than later for retirement can make a big difference.
It’s important to note though if you’re 20 years old now you’d need to act quickly to get the full £44k in retirement.
Lloyds pension expert Robert said: “While most people will be saving into their pension monthly, either through their employer or into a personal pension, using initiatives like Save the Change can boost their pot even further.
“As little as £180 a year, which is the average saved by our customers through Save the Change on their day-to-day transactions, can make a real difference to people’s pension pot when they come to retire.”
“Saving early and regularly even small amounts can end up having a big impact – the most important thing is to get in the habit early.”
Pension tax relief
By putting money in your pension, it’s not just the money you’re saving – you benefit from tax relief and investment growth over the years, especially if you start early.
Tax relief means when you pay £80 into your pension, the government tops it up to £100, instead of taking the 20% tax on it for basic-rate taxpayers.
The money in your pension is invested, for example in stocks and shares, and grows over time.
Other pensions experts agree that the best way to build a good retirement fund.
Helen Morrisey head of retirement analysis at Hargreaves Lansdown says you should drip-feed your pension contributions.
She explains: “Pensions are a long-term game and contributing even small amounts can really help build up your pension.
“Retirement can feel like a long way away but it is precisely the long-term drip feed of contributions over time combined with investment growth that can help you enjoy a good retirement so it really pays to start early.
“The extra boosts that come with pension tax relief and the employer contribution if you get one provide an extra incentive and watching your pension grow over time will help you face your retirement planning with much more confidence.”
The data comes as Lloyds has launched a Ready-Made Pension which is a digital-first product which has been designed to make saving for retirement simpler, whether someone is combining multiple pensions or opening their first pot.
The new product will be available initially to customers who bank with Lloyds Bank, Halifax or Bank of Scotland.
Users will be able to access the new feature via their banking mobile app or online.
They will be able to consolidate up to 10 pension pots and have a pension created for them which is tailored to their age and retirement plans, managed by experts and enables them to track contributions and make changes at any point.
Customers can open a Ready-Made Pension with a minimum cash investment of £5,000 or set up monthly contributions from as little as £150 a month and can transfer in existing pensions from £10,000 upwards.
What are the fees on the Ready-Made Pension?
Lloyds Ready-Made Pensions will have an annual account fee of 0.3% or a minimum of £5 a month.
Ongoing investment charges are set and 0.24% and there is a transaction cost of 0.14%.
There are no drawdowns or exit fees with this feature.
How much do I need for retirement?
When planning for retirement you will need to take into account the rising cost of living, inflation and the lifestyle you want to lead.
Retirees can start to claim the state pension at 66, though if you’re retiring after 2026 you’ll almost definitely see that minimum age rise.
But your state pension is unlikely to be enough on its own, which is why a workplace pension is so handy.
How to save for retirement
Anyone planning their retirement needs to do some careful calculations about how much they will need to afford the lifestyle they want.
Pension calculators can also help you work out how much money you need to be saving to have the pension pot you want at retirement.
The earlier you start saving, the easier it is as your money has longer to grow.
Make sure to keep on top of your annual statement and check your pension accounts as well.
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