Time-poor for your pension? These 15-minute checks can boost your pot by thousands

One of the most important things you can do for your pension is set yourself up for success early on. Pensions aren’t going to garner all of your attention in your 20s and 30s, and they don’t have to, but devoting just a bit of time to it is certainly worth it. Ticking off these three items can make the difference of hundreds of thousands of pounds in your pension pot.

Check on your auto-enrolment

If you are 22 or older and work for a company earning over £10,000 a year, you will be automatically enrolled in your workplace pension after three months. This will mean that 5% of your salary will go to pension contributions, and your workplace will contribute an amount equivalent to 3% of your salary. You don’t face any tax on this contribution, so really, this is only a difference of 4% in your take-home pay if you’re a basic-rate taxpayer. If you opted out of your auto-enrolment, that means your employer isn’t investing anymore either.

If you choose to opt out, you are essentially giving yourself a pay cut of 3% in the long run, because there’s no way to recoup those pension contributions.

Auto-enrolment has been a very positive feature because it means more people are investing in their pension early on. But it’s dangerous to assume that just investing the minimum amount is enough.

Bumping up your contribution by just a percentage point can make a big difference in your pension pot, and a minimal sacrifice to your life now. Plus, your employer will often match any increase in contribution, so an extra percent from you could mean an extra percent from them too. Here’s what investing 6% of a £30,000 salary at age 22, with an employer contribution of 4%, would look like by age 60 versus the starting amount with auto-enrolment (assuming 2% growth in annual salary each year).

Are you paying too much tax?

If you are a higher or additional rate taxpayer, you might not be receiving all the tax relief you could on your pension, and it could mean more money in your pocket sooner rather than later. This is a quirk of the tax system due to the different ways companies handle pensions with HMRC.

If your company makes pension contributions through a ‘relief at source’ plan, you will only be reimbursed 20% for income tax on your pension contribution automatically, because with relief at source your pension contribution is removed from your salary after income tax is already taken.

Higher and additional rate taxpayers are paying income tax between 40% and 45%, meaning there’s much more to claim than the 20% you’re given automatically. You can do this by filing with HMRC, who will reimburse you over time through PAYE. If you’ve been in this situation unknowingly for the past few years, you can backdate your claims for the past four tax years.

If you participate in salary sacrifice, or if your pension contributions are made through ‘net pay’, you’ll get this extra tax relief automatically because your pension contributions are made before income tax is taken.

The easiest way to find out what system you are on is to ask your manager, HR team, or whoever handles your payslips.

Find out if your pension pot is on track with your peers in our recent article. 

Check what you’re invested in

Every month, you likely get an email from your workplace pension provider giving you an update on your account. You don’t need to keep up with all of these communications, but every once in a while, it’s worth logging into your account to see what’s actually happening with your pension. Once you’re in your account, there are two main ways you could potentially boost your savings: by looking at your fees and your investment choice.

Your ongoing charge fee is the cost for whatever investment your pension is in. Under automatic enrolment, this fee can’t be higher than 0.75%, but you can easily find investments where the fee is closer to 0.25% or 0.5%. This seems like a minimal change, but in the long run it can save thousands.

The other change you can make is to what you’re invested in. This investment will have been automatically selected for you, but it doesn’t mean it’s the right one to suit your needs. This will often be a blanket choice given to everyone, for example a fund invested 40% in bonds and 60% in equities with a moderate level of risk, which typically means a lower return than a higher risk fund in the long term. If you’re early on in your career, you might have more time to ride out any market bumps that come along with higher risks and be able to benefit from a better rate of return.

For example, AJ Bell’s pension calculator offers options with a low (2%), medium (5%) and high (8%) growth rate. You can use your own figures in the calculator to get a better idea of what sort of difference changing your investment would make. Here’s how a 5% growth rate versus 8% growth rate would affect someone aged 22 on a £30,000 salary over 40 years, assuming an 8% pension total pension contribution.