If you’re the sort of person in the habit of buying a lottery ticket each week, you may be spurred on by the dream of winning a life-changing amount.
This is the case for many individuals, despite the fact the odds of getting the jackpot are equivalent to picking a specific grain of sand from a vast beach. It is the possibility of a win which creates excitement and hope, accompanied by long hours imagining what we’d do with the windfall.
The odds are not in your favour
While playing the lottery can be exhilarating and fun, new analysis from online pension provider, PensionBee, reveals that if approximately 50% of UK adults who regularly enter the National Lottery each week diverted the amount spent into their pension, they could boost their pot by nearly £10,000 by the time they retire. That’s certainly not a sum to be sniffed at.
Diverting the money into a pension makes far better sense
According to PensionBee’s modelling, an 18-year-old entering the National Lottery ‘Lotto’ draw once a week, has roughly less than a 0.05% chance of winning a prize pot of £10,000 by the time they reach the average retirement age of 66.
If, however, someone instead contributes the cost of a weekly lottery ticket – £2 – into their pension each week from the age of 18 until they retire at 66, they could boost their eventual pension pot by an extra £9,958. Equally, someone entering the lottery twice a week could have an additional £19,930 in their pot by age 66 if they contributed £4 a week into a pension from the age of 18.
Forgo the excitement and play it safe
With so many pressures on our finances right now, it’s hard to overcome the allure of receiving millions of pounds overnight. But before you part with cash on yet another ticket which might bag you nothing at all, it’s worth thinking again.
This could be the perfect time to look in the mirror and tell yourself straight that you rarely win anything. Becky O’Connor from PensionBee, said: “There’s more chance of ‘winning’ big with a pension than there is entering the lottery – the catch is you have to wait until you reach retirement to reap the reward.”
Tips to help you boost your pension savings
If you’re thinking about how best to save for a comfortable retirement, there are some simple steps you can take to turbo-charge the pension pot you eventually end up with.
Maximise employer contributions
Under current rules, employers are required to pay a minimum of 3% into a workplace pension. However, some may be willing to pay more, or even offer to match contributions should you wish to increase the amount you’re paying in. O’Connor said: “Contribution matching can help build your retirement savings faster, so it’s always worth asking your employer if this option is available.”
Consider boosting your monthly contribution by 1%.
While this may sound like a modest adjustment, even a small increase today can have a significant impact on your future pension pot. This is due to the power of compounding. Emma Sterland from wealth management firm, Evelyn Partners, said: “Early pension savings are very powerful because they benefit from compounded returns (‘returns on returns’) which can exponentially increase a pension pot through the following decades.”
The good news is that an increase of just 1% shouldn’t drastically impact your current lifestyle but will lay the groundwork for greater financial security. Find out more here: Should I increase my pension contributions by 1%?
Check the type of investment plan behind your pension
If you are at least 10 years from giving up work, a medium to high growth plan that comes with a bit more risk is likely to generate higher investment returns than a cautiously-invested plan. While many schemes automatically ‘lifestyle’ older workers into more cautious plans, this can attract criticism due to the fact it means some savers may miss out on the opportunity to maximise growth. It’s worth checking to see if you have been moved into a more cautious set of investments unnecessarily early, based on your circumstances.
Track down lost pensions
Figures suggest there could be as many as 4.8 million ‘lost’ pension pots in the UK. With this in mind, you need to take care to keep track of all your old pensions to ensure you’re not missing out on any hard-earned savings. Read more with our article: How to track down lost pensions – and how to reduce the risk of losing track.
Consider combining your pension pots
One way to make things simpler is by consolidating your pensions into one place. This can help you assess if you’re on track for the lifestyle you want in retirement – or whether you need to increase your contributions. But before doing so, you need to weigh up the pros and cons.
Sterland said: “On the face of it, it seems sensible to have all your pension savings in one place. It’s risky and difficult trying to manage multiple pots. What’s more, older legacy pension schemes can sometimes charge higher fees and even restrict some of the flexible options and death benefits introduced in 2015 with the pension freedoms. This might include, for instance, not offering flexible drawdown.”
However, the opposite can be true for some savers. Sterland added: “Some ‘defined contribution’ or ‘money purchase’ schemes come with ‘safeguarded benefits’ such as guaranteed annuity rates, protected tax-free cash or spousal benefits, and savers should think twice before sacrificing these by transferring out.” Likewise, some old-fashioned schemes charge exit penalties which might mean it’s better just to keep hold. Read more with our article: Pension consolidation: streamline your retirement.
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