UPDATE: |Money changes for people on £35,000 that could add £240,000 to pension pot News

Personal finance experts at Interactive Investor have highlighted three steps to take to improve your wealth in your golden years

Small adjustments to your pension could potentially add up to £243,200 to your retirement fund for someone earning just below the average UK salary. Personal finance specialists at Interactive Investor have outlined three steps to enhance your wealth during your retirement years.

Their first recommendation is to switch jobs to an employer who contributes more than the minimum 3% to your workplace pension scheme. An individual earning £35,000 who transitions to an employer offering a 5% employer pension contribution could accumulate an additional £116,700 by the time they retire.

The average salary for a full-time worker in April 2024 was £37,430.

The second piece of advice is to fully utilise salary sacrifice schemes and reinvest the tax saving. Salary sacrifice is an agreement where you consent to decrease your cash pay entitlement, typically in exchange for a non-cash benefit such as pension contributions.

According to Interactive Investor, basic-rate taxpayers save £8 in National Insurance for every £100 they contribute to their pension, while higher-rate taxpayers save £2 for every £100 they contribute, reports the Mirror.

They estimate that an individual earning £35,000, contributing 5% of their salary to their workplace pension and redirecting the £12 monthly National Insurance saving to their pension – either a workplace scheme or a SIPP – could boost their pot by £27,600 over 40 years.

By stashing away an extra £50 a month into your pension after a salary increase for 40 years, you could potentially increase your retirement funds by as much as £98,900. This is based on an assumption of a 5% investment growth and increasing the total contribution by 2% each year.

For basic-rate taxpayers, this additional £50 monthly contribution effectively only costs £40 due to tax relief, while for higher-rate taxpayers it’s £30, and for additional-rate taxpayers, just £27.50.

Combining three sensible adjustments could enhance the retirement pot size considerably for individuals at different earnings levels. For someone with an annual salary of £35,000, their pension pot could grow by an extra £243,200.

A person earning £60,000 would see a gain of £312,400, whereas an individual with a £100,000 income could boost their retirement wealth by £454,800. These figures assume a consistent approach over 40 years, paired with 5% yearly investment growth net of fees.

Interactive Investor’s senior manager Camilla Esmund remarked: “It’s encouraging that you don’t need to be a high earner to add substantial sums to your pension with some modest tweaks. Taking simple steps like filling in salary sacrifice forms or checking employer contributions when you move jobs could boost your pension significantly over your working life.”

She also emphasised the insufficiency of state pensions for a comfortable retirement, adding: “Although the state pension has improved in recent years, it still isn’t enough for a comfortable retirement. So, taking steps now to boost your workplace pension is vital to get your retirement savings on track.

“Not everyone is in a position to move jobs, but when the time comes, it’s vital to find out more about the 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%. Over years of work that could add thousands to your pension wealth and make the difference between a basic and more comfortable retirement.

“If you want to top up your pension, then using a SIPP alongside your workplace pension can be a great way to build retirement wealth. A SIPP allows you to tweak your contributions each month, which is really useful if you have some more expensive months and want to vary the amount you pay in.”

Craig Rickman, personal finance expert at interactive investor, said: “Salary sacrifice is a great and simple way for all workers, but particularly those on low to modest incomes, to improve their future financial security at no extra cost.

“Unlike tax relief, salary sacrifice is a better deal for lower earners because they can save 8% NI on pension contributions. This saving comes on top of 20% tax relief, meaning it costs just £72 to pay £100 into their pension. In contrast, higher-rate taxpayers save just 2% NI on pension contributions due to the lower rate for earnings over £50,270. By adding this tax saving into your workplace pension or a SIPP, basic-rate taxpayers could deliver a meaningful boost their pension wealth.”