We’re into the time of year when at least some of the resolutions we made at the start of January may have already fallen by the wayside. For many people, that meant joining a gym with good intentions of getting fitter or shedding a winter layer or two.
But while this was done in good faith at the time, there’s a good chance that as we move into March, the direct debits going out of accounts aren’t being matched by visits to the gym. Research suggests that while almost half of all adults make resolutions, only around 10% manage to stick to them.
Don’t waste direct debit payments
The problem is, unless you cancel the monthly payments you’ve set up, you’ll see your outgoings increase even though you’ve stopped using them. According to figures, the average Brit wastes a whopping £39 a month on direct debits they don’t want or use. It really isn’t rocket science: this money could be better used elsewhere.
New analysis from Standard Life, part of Phoenix Group, shows how cutting out unnecessary monthly payments and redirecting them into a pension could give your pot a pretty healthy boost. Mike Ambery, managing director for workplace pensions at Standard Life said: “There could be a huge long-term benefit to cancelling them – and redirecting the money to your retirement pot.”
Funnell those ‘wasted’ payments into your pension
According to Standard Life, someone who began working with a salary of £25,000 a year – and who paid the minimum monthly auto-enrolment contributions (5% employee, 3% employer) – from the age of 22, could have a total retirement fund of £210,000 by age 68. (This is allowing for 2% inflation over the period). If, however, that same person diverted their ‘wasted’ direct debits into a pension pot, boosting it by £39 a month, this could build up a retirement fund of £247,000 by the age of 68. (Figures also based on 2% inflation). This is a huge £37,000 more in today’s prices.
| Total retirement fund at age of 68* | |
|---|---|
| No additional contribution, saving from age 22 | £39 a month additional contributions from, age 22 |
| £210,000 | £247,000 |
| +£37,000 | |
*assuming 3.5% salary growth per year and 5% a year investment growth. Figures allow for 2% inflation. Annual Management Charge of 0.75% assumed.
Don’t let money go to waste
So, if you’re approaching your morning workout with less enthusiasm this week, or if you’ve not actually made it to the gym for a while – or if you’ve given up entirely on another hobby you signed up to – it might be time to think again. The key is not to keep on paying for memberships and subscriptions you are no longer making use of. Ambery said: “This wastage can really build over time. To avoid unnecessary expense, keep an eye on regular payments and cancel old direct debits or outgoings you no longer use.”
Remember, these extra funds can help give your long-term savings a boost. Ambery added: “It’s amazing to see the impact the average monthly wasted direct debit could have if you funnelled it towards a pension instead.”
How much do I need slotted away?
If you’re wondering how much you need in your retirement pot, it’s helpful to have a ball-park figure to work towards. According to the Pensions and Lifetime Savings Association (PLSA), to afford just a ‘basic’ lifestyle, a single person would need £14,400 annually. For a ‘moderately comfortable’ lifestyle, the figure would rise to £31,300. Bear in mind that right now, the full State pension for 2024/25 is £11,502 a year. Be under no illusion: the State pension alone is not going to be enough for you to retire comfortably. You are, almost without doubt, going to need to make use of workplace or private pensions, or both.
Conduct a pension review
One of the best ways to ensure your retirement savings are on track to deliver the type of lifestyle you desire in the years after you stop working is by carrying out a review. Whether you choose to do a review yourself – or consult the services of a qualified financial planner – it’s important to ensure your retirement savings are in the best shape possible.
Bumping up your monthly pension contributions right away is a really good starting point. By doing this, you are helping your pension pot to grow significantly in the long term. Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “No one wants to run out of money in the final stages of their life when they might not be in good health, which is why the decisions we make now can have a major impact on how well we live in the future.”
Photo by 愚木混株 cdd20 on Unsplash
