The little-known retirement boost: round up your pension contributions

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• Rounding up your monthly pension contributions to the nearest £100 could boost your pension by £64,000 in retirement

Rounding up monthly pension contributions to the nearest £100 could generate thousands more in retirement savings, new analysis from Standard Life, part of Phoenix Group, reveals.

Increasing monthly pension contributions throughout a working life could have a significant impact on your retirement pot, with small monthly increases making a noticeable difference after they’ve had the chance to grow and benefit from compound investment growth.

Standard Life’s analysis finds that those who begin working on a salary of £25,000 per year and pay the minimum monthly auto-enrolment contributions (5% employee, 3% employer) from the age of 22, could have a total retirement fund of £434,000 by the age of 66, not adjusted for inflation. However, those who rounded up their pension contributions to the nearest £100 throughout their career, up until the age 66, could find themselves £64,000 better off in retirement with total pension savings of £498,000, not adjusted for inflation.

Total retirement fund at age of 66*
Pension savings without rounding up monthly contributions	Pension savings with rounding up monthly contributions
£434,000	£498,000
	+£64,000

^{*if beginning working with a salary of £25,000 per year and paying 5% monthly employee contributions and 3% employer contributions into a workplace pension at the age of 22 and assuming 3.5% salary growth per year. Figures are not reduced to take effect of inflation. Annual Management Charge of 1.00% assumed. The figures are an illustration and are not guaranteed. Earning limits not applied.
Figures come from taking the above assumptions and working out the pension contribution for each month of our model person’s career from age 22 to 66 and rounding them up to the highest £100 – so if the monthly contribution for one month is £125 this will be rounded up to £200 and if another monthly contribution is £180 this will also be rounded up to £200 – then using the rounded up figures to project retirement savings and compare against figures without any rounding}

Our analysis assumes 3.5% salary growth a year, so, as an example, a 45 year old would earn £55,152.86 a year and their monthly contribution without rounding would be £367.69. In this case, they would round their contributions up to £400 a month.

There’s always a trade-off, as putting more money away means there’s less of it to meet short-term costs now, but these figures highlight the potential benefit in retirement.

Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “Many of us now use banking apps that will automatically round up purchases to the nearest pound and put the difference into savings. It’s a little nudge that goes unnoticed at the time and if you’re in a position to do so, rounding up your pension contributions to the nearest round number each month can be a great way to top up your savings. It could have a very positive impact on your final retirement pot and, as a result, your standard of living in retirement. The difference might seem small each time, but over a number of years can add up to a lot.

“Pensions are one of the most tax-efficient ways to save and they’re investments, so they have the potential to grow faster than cash-based savings would. They’re also for the long-term, so they give you a good chance of benefiting from compound investment growth, or investment growth on earlier investment growth, as the years go by. There’s a trade-off involved as you’ll have a bit less to spend each month, but your future self is likely to thank you.”

ENDS

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Notes to editors:

¹ Calculations assume the following:

Starting Salary	£25,000
Employer Contribution	3.00%
Employee Contribution	5.00%
Investment Growth	5.00%
Salary Growth	3.50%
Annual Investment Cost	1.00%

^{Figures are not reduced to take effect of inflation.}

² Calculations are intended only for the sole purpose of providing an illustration regarding the projection of savings and pensions. They should not be used with the intention to give an accurate representation of real-world outcomes. 

About Standard Life

• Standard Life is a brand that has been trusted to look after peoples’ life savings for nearly 200 years.
• Today it proudly serves millions of customers who come to Standard Life directly, through advisers and through their employers’ pension scheme.
• Standard Life is part of Phoenix Group, the largest long-term savings and retirement business in the UK. We’re proud to be building on nearly 200 years of Standard Life heritage together.
• Our products include a variety of Pensions, Bonds and Retirement options to suit people’s needs, helping our customers to invest and save for their future. We’re proud to offer a leading range of sustainable and responsible investment options.
• We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs and plan a future they feel confident about.
• The value of investments can go down as well as up and may be worth less than originally invested.