Each year around 36 million people in the UK take part in the National Lottery, in hopes of winning the jackpot. But what if there was a way to score a financial boost - without relying on luck?
Pension savings vs. lottery tickets
Playing the lottery can be exciting, but the odds of winning a huge amount of money are slim. Nearly 50% of UK adults play the National Lottery each week. According to new research from PensionBee, if they put that money into their pensions instead, they could increase their retirement savings by nearly £10,000.
For example, an 18-year-old who plays the lotto once a week has less than a 0.05% chance of winning £10,000 by the time they retire at 66. In contrast, if they invested the cost of a weekly National Lottery ticket (£2) into their pension, they could expect to add about £9,958 to their pension pot. This amount, when spread over retirement, could translate to nearly £400 extra per year.
Those who buy lottery tickets twice a week could see an even bigger boost. Contributing £4 weekly to their pension from age 18 could result in an extra £19,930 by age 66. This amount could translate to nearly £800 extra per year in retirement income. So while the chance of a big lottery win may feel enticing, saving into a pension is a more reliable way to achieve financial success in the future.
Tips to help you boost your pension savings
So if you’re wondering how to boost your pension savings effectively, here are four simple tips to help you grow your projected retirement income.
1. Consider boosting your monthly pension contribution by 1%
While this may seem like a modest adjustment, a small increase today can have a significant impact on your future pension pot due to the power of ‘compounding’. Compound interest is basically interest that you earn on the interest that’s already built up on your savings.
Increasing your contributions by 1% will be a manageable change for many. If you can afford to, it shouldn’t drastically impact your current lifestyle and instead goes a long way in laying the groundwork for greater financial security in the future.
2. Maximise employer contributions
If you’re employed, you could be enrolled into a workplace pension scheme. Though there’s an eligibility criteria that’s worth checking. If you’re eligible, under Auto-Enrolment rules, both you and your employer must contribute to your workplace pension. As an employee, you must pay at least 5% of your annual qualifying earnings, which includes 1% tax relief from HMRC. Employers must contribute a minimum of 3% of your qualifying earnings.
But some employers may be willing to pay more or even offer matched contributions should you wish to increase your pension contributions. Contribution matching can help build your retirement savings faster, so it’s always worth asking your employer if this option is available.
3. Check the type of investment plan behind your pension
If retirement is still decades away, you may want to consider a medium to higher-risk investment plan, which could provide better returns than a more cautious plan. Many pension schemes automatically shift older workers into lower-risk investments, which could limit your growth potential. So it’s worth checking what pension plan you’re invested in and any past performance data if it’s available. If you’re a PensionBee customer, you can find out more about your plan on the website or in your app.
4. Combine your pensions where it makes sense to
With millions of pension pots and over £50 billion considered ‘lost’ in the UK, it’s crucial to keep track of your old workplace pensions. Combining them can help you assess whether you’re on track for your desired retirement lifestyle and if you need to increase your contributions. By consolidating you can simplify your finances and ensure you’re not missing any savings you’ve already built up.
Summary
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “It’s hard to overcome the allure of receiving millions of pounds overnight, which is why so many play the lottery. But there’s more chance of ‘winning’ big with a pension - the catch is that you have to wait until you reach retirement to reap the reward.”
While the dream of winning the lottery is tempting, achieving financial security usually comes from regular saving and smart investments. Instead of depending on the luck of a lottery ticket, consider putting that money into your pension contributions. This change in focus towards saving consistently can help you build a more stable financial future over time.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
