New analysis from leading online pension provider, PensionBee, has found that if Brits diverted half of the money they’re forecast to spend this Christmas to their pensions, they could be as much as £1,442 better off by the time they reach retirement. This amount could increase to £37,483, for those with the longest retirement horizon, if they carried on paying the same Christmas bonus into their pension until they retired at age 65.
According to a recent study by Statistica, average spending per head during the 2021 Christmas period is expected to reach £1,131 across the UK, with a low of £994 in the North East and a high of £1,746 in London (1).
If Brits were to save just a quarter (£283) of the average amount predicted to be spent this year into their pension instead, they could add between £423 and £721 to their savings, depending on how far off they are from retirement. Should a saver manage to cut back further and only spend half the amount forecasted, making a saving of £566 into their pension, they could boost their pot by between £846 and £1,442 ahead of retirement.
Crucially, if Brits were to go on and make the same level of additional contributions every Christmas, those aged 25 today could amass an additional £19,140 by retirement if they paid themselves a £283 Christmas bonus each year, and £37,483 for larger contributions of £566. Those in their mid-30s today could add between £13,260 and £25,968 to their pots respectively, while those in their mid-40s could save an additional £8,203 to £16,065. For those currently in their mid-50s, with less time until retirement, an annual contribution of £283 could raise an extra £3,821 towards their retirement fund, rising to £7,482 if they are willing to sacrifice more of the Christmas trimmings.
Romi Savova, CEO at PensionBee, commented: “With Christmas fast approaching I would urge savers to think about how much they are spending on festivities, and whether any of that money could be redirected towards their pension instead. The power of compound interest can have a significant impact on the total pension pot they retire with. Paying a Christmas bonus into your pension via a lump-sum payment is simple to do, and your future self will thank you greatly”.
All calculations are based on the assumption that the pension grows at an annual rate of 5% with inflation of 2.5% per year reducing the rate of return.
Appendix
Table 1: Projected pension pot based on saving 1/4 of average Christmas spending in 2021
| Age | Years to retirement at 65 | Amount saved in Christmas 2021 (£) | Projected amount at retirement (£) |
|---|---|---|---|
| 25 | 40 | £283 | £721 |
| 35 | 30 | £283 | £604 |
| 45 | 20 | £283 | £506 |
| 55 | 10 | £283 | £423 |
Source: PensionBee, December 2021. We have assumed the pension grows at an annual rate of 5% and that assumed inflation of 2.5% per year reduces the rate of return.
Table 2: Projected pension pot based on saving 1/2 of average Christmas spending in 2021
| Age | Years to retirement at 65 | Amount saved in Christmas 2021 (£) | Projected amount at retirement (£) |
|---|---|---|---|
| 25 | 40 | £566 | £1,142 |
| 35 | 30 | £566 | £1,208 |
| 45 | 20 | £566 | £1,012 |
| 55 | 10 | £566 | £846 |
Source: PensionBee, December 2021. We have assumed the pension grows at an annual rate of 5% and that assumed inflation of 2.5% per year reduces the rate of return.
Table 3: Projected pension pot based on saving 1/4 of average Christmas spending every year until age 65
| Age | Years to retirement at 65 | Amount saved each Christmas (£) | Projected amount at retirement (£) |
|---|---|---|---|
| 25 | 40 | £283 | £19,140 |
| 35 | 30 | £283 | £13,260 |
| 45 | 20 | £283 | £8,203 |
| 55 | 10 | £283 | £3,821 |
Source: PensionBee, December 2021. We have assumed the pension grows at an annual rate of 5% and that assumed inflation of 2.5% per year reduces the rate of return.
Table 4: Projected pension pot based on saving 1/2 of average Christmas spending every year until age 65
| Age | Years to retirement at 65 | Amount saved each Christmas (£) | Projected amount at retirement (£) |
|---|---|---|---|
| 25 | 40 | £566 | £37,483 |
| 35 | 30 | £566 | £25,968 |
| 45 | 20 | £566 | £16,065 |
| 55 | 10 | £566 | £7,482 |
Source: PensionBee, December 2021. We have assumed the pension grows at an annual rate of 5% and that assumed inflation of 2.5% per year reduces the rate of return.
Footnotes
