Saving just £180 a year could turn into £44,000 - but you need to act now

09 April 2024 , 11:39

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You should start saving for your pension sooner rather than later (Image: Getty Images/Image Source)

Saving just £180 a year from the age of 20 could boost your pension pot by £44,000 by the time you retire, new research from Lloyds Bank reveals.

This is because pension contributions benefit from tax relief, as well as interest growth. Lloyds reveals that the average total saving per year is approximately £180 - but due to tax benefits, this would turn into £225 if invested into a pension. Any contributions to your pension - workplace or private, not your state pension - attracts tax relief at your highest marginal rate.

Basic rate taxpayers get 20% tax relief, higher rate taxpayers can claim 40% and additional rate taxpayers get 45%. Scottish Widows retirement expert Robert Cochran has crunched the numbers to work out how much you could benefit by the time you retire, assuming the amount saved goes up by 2.5% a year and that growth of fund is at 4% after charges.

It is estimated that someone saving from the age of 20 would have saved up £44,414 by the age of 65, while the fund is £25,071 for someone who started saving from the age of 30. This drops down to £13,083 if you start saving from the age of 40, and £5,827 from the age of 50.

• 20 year old - £44,414
• 30 year old - £25,071
• 40 year old - £13,083
• 50 year old - £5,827

Mr Cochran said: “It shows that 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. While most people will be saving into their pension monthly, either through their employer or into a personal pension, 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.”

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It comes as Lloyds Bank customers will now be able to combine their existing pension pots or open a pension through their mobile banking app or internet banking through a new service called Ready-Made Pensions. It will allow customers to consolidate up to ten pension pots, track pensions, and have a pension created for them which is tailored to their age and retirement plans. The new product will be available initially to customers who bank with Lloyds Bank, Halifax or Bank of Scotland.

Levi Winchester