COULD your weekly social plans be leaving you hundreds of thousands of pounds worse off in retirement?
Experts are warning too many people are not paying into their pension pots – and choosing to spend the spare cash on social activities instead.
No one wants to abandon their social lives entirely – but even reducing your social life slightly could make a huge difference to your retirement pot.
Cutting back on just one social event a week and putting that cash into your pension pot instead could leave you a whopping £200,000 better off in retirement, according to AJ Bell analysis for The Sun.
Susan Hope, pensions expert at Scottish Widows, says: “This isn’t about giving up your social life. It’s about striking a balance and occasionally choosing to invest in the future you.
“Even relatively small amounts, invested regularly, can grow into meaningful sums over the long term.”
Read more on pensions
CASH CRASH
What the money market chaos could mean for YOUR cash from savings to pensions
TOP POT
It’s never too late to get a 5* retirement – 6 ways to add £££s to your pension
How does your pension work?
If you have a workplace pension, you’ll automatically start paying into it if you’re over 22 years old and earn over £10,000 a year.
You’ll need to pay in a minimum of 4% of your earnings, while your employer will contribute 3% – and you’ll get another 1% in tax relief from the Government.
If you’re earning £25,000 this would mean around £83 in monthly contributions from your pay packet with a top up of £63 from your employer.
You can opt out of paying into your pension, but this isn’t sensible even if you really think you need the cash.
Most read in Money
JOB LOT
The top 20 highest-paying jobs you can do WITHOUT any GCSEs & still earn up to £48k
SHUT DOWN
Major broadband provider with 5.5million customers is AXING free service
CASH BOOST
Nationwide brings in huge change and it can land you up to £120 FREE cash
SEEDS OF SUCCESS
How a garden centre job could grow into a £50k career
Contributing to your pension doesn’t mean you have to cut back your spending dramatically.
Especially if you start while you’re young, even small contributions can grow significantly over time.
Start by skipping one social event a week – or opting for a free activity with your friends instead.
Then work out how much you are saving and a month as a result and use your workplace pension account to increase your contribution to your pot by the same amount.
If you’re 22 years old and go out for a £25 dinner once a week, you’d end up spending around £1,300 across the year.
Putting that money into your workplace pension by upping your monthly contribution by £100 would boost your pot by a huge £196,000 by the time you’re 68 if your contributions are matched by your employer.
Brunch every weekend could cost you around £20 a time, or £1,040 over the year.
If you put that into your pension instead, you’d have £158,000 in your pot by 68.
If you got a cocktail each weekend costing £12 each, this would cost you £624 a year.
This would be worth £94,000 in your pension pot by the time you retire.
Going to a weekly yoga class for £15 would set you back £780 a year.
Putting that into your pension pot instead could bring your total up to £118,000.
However, before you increase your contribution make sure that your employer will still match the total you put in, otherwise you’ll only get part of the benefit.
Two-thirds of Gen Z not paying into a pension
Not paying into your workplace pension pot could leave you struggling in your later years, as the state pension currently does not provide enough for a comfortable retirement.
Plus, experts believe the state pension could become less generous over the years as the Government faces ballooning costs and increased calls to slash it.
But research has revealed almost a staggering two-thirds (66%) of Gen Z aren’t contributing to their pensions at all, according to VoucherCodes.
Around half of Gen X and Millennials are also failing to pay into their retirement pots.
Incomes have been squeezed by rising inflation and stagnant wages, with many households choosing to skip paying into their pensions just to pay for the essentials.
But the VoucherCodes research found two-fifths of Gen Z admit to spending more on socialising, dining out and pubs and nightlife than they were three years ago.
A further 17% say they’re upgrading their social plans and opting for more expensive activities.
But choosing a free or cheaper activity could be an important investment in your future.
For example, you could take online yoga classes, take a walk with your friends, or have a dinner at home or picnic where you each contribute.
Or you could choose to have just one less cocktail per week or swap an alcoholic drink out for a soft drink.
RECOMMENDED STORIES
Sarah Coles, head of personal finance at AJ Bell, says: “Nobody is suggesting that too much brunch is the source of all the woes of a generation facing huge challenges over everything from work to buying a home of their own, but giving up the odd brunch here and there might help you find a little extra cash for retirement.
“And anything you can do at this age, and stick with for life, will be supercharged by the effect of compounding, which can make a startling difference to your pension.”
How to start saving or paying more into your pension
SAVING for retirement doesn’t need to be complicated.
Choose your contributions
If you’re an employee, you’ll likely be enrolled into a workplace pension scheme automatically.
That means you won’t need to do anything to start saving – but you will need to choose what percentage of your salary you want to contribute each year.
The minimum is 4%, but you might want to increase this – especially if you’ve just got a pay rise.
Remember that your employer will match your contributions, so that’s essentially free money.
Plus, you’ll get tax relief when you pay into your pension so you’ll be taxed less than if the money had just gone into your payslip.
Look at your investments
You could also look at where your pension is invested.
If you still have decades until you retire, you might want to move your pension savings into a more “adventurous” investment fund.
This means your pot is likely to grow more because you’re choosing riskier investments, but there is also a bigger risk your money could go down.
Still, if you keep your money invested for a long period of time you should ride out any bumps in the market and are likely to see strong returns.
Consider a personal pension
If you’re self-employed or want to set aside extra pension savings, you could open a personal pension, such as a Self-Invested Personal Pension (SIPP).
This is a type of UK Government-registered personal pension that lets you choose and manage your own investments.
You can open one of these through a provider such as Hargreaves Lansdown, AJ Bell or Aviva.
You’ll be able to grow your money tax-free and you’ll get between 20% to 45% tax relief, depending on the tax bracket you’re in.
Just be aware the fees can be higher with a SIPP.
Consider a Lifetime ISA
Thrifty Clair, savings expert at VoucherCodes, also recommends taking out a Lifetime ISA.
She says these are “brilliant for long-term savings” as the Government gives you a free 25% bonus on whatever you save.
The bonus is capped at £1,000 a year.
Clair says it’s a “supercharged way to save for retirement alongside a pension”.
Be aware you’ll face a withdrawal penalty and lose your bonus if you take your money out for any reason other than retirement or buying your first home.
You’ll also need to be quick as the Lifetime ISAs are set to be scrapped in April 2028.