The power of 1% - how to boost your pension by £37,000

Increasing your workplace pension contributions by as little as 1% could give you as much as £37,000 more in retirement. And that’s possible even if you end up taking a career break at some point, for example to start a family or care for an elderly relative.

The undeniable power of paying just 1% more into your pension is evident from the latest analysis from Fidelity International. By adding that extra 1% to your pension contributions over the course of your career you can make a significant difference to the amount you have in retirement.

Our data shows that a 31-year-old woman, who has been regularly contributing an additional 1% to her workplace pension since the age of 25, could make up the £25,000 shortfall that would otherwise typically occur if she took a two-year career break at 31 to have a baby.

This demonstrates just how powerful that additional 1% can potentially boost her future financial wealth than if she had stuck to the minimum 8% contribution and not taken any career break at all.

It also proves that the age-old notion that time taken off work can mean less money in retirement is no longer true. With a little planning and diligent saving, you can bridge the gap - and even substantially boost what you would have otherwise had.

At times like this, when the cost of living makes increasing your pension contributions even more difficult than usual, it’s a welcome reminder of the benefits of doing whatever you can to stay on track.

It also shows exactly why it’s so important to start saving into a pension as early as possible.

A woman who increases her pension contributions by 1% from the age of 25 and takes a two-year career break at the age of 31 could see their pension pot rise to £316,340 - almost £10,000 more than a woman paying in the minimum 8% without a career break, and over £35,000 more than a woman who takes a two-year career break and continues to pay the average 8% in pension contributions.

Based on the Office for National Statistics’ average earnings figures and adjusting for inflation and investment growth, the average pot at retirement for a woman paying in the minimum 8% into her workplace pension over 40 years without a career break is £306,377, compared to £453,616 for men. For women who choose or need to take career breaks to raise children or care for older relatives, this gap in retirement funds widens further.

The typical shortfall felt by women taking career breaks is narrowed again if less time is taken out of work. If our 31-year-old chooses to take a one-year break, she could see her pension pot rise to £330,317 by increasing her contributions by 1% - over £23,000 more than a woman who contributes the 8% without a career break and over £36,000 more than had she taken a one-year break without increasing her pension contributions.

Again, the pot at retirement increases if a career break is reduced to six months. A final retirement pot of £337,420 can be enjoyed by women who contribute 1% more into their workplace pension - over £31,000 more than a woman paying in the minimum 8% without a career break and £37,000 greater than if she had a six-month break without increasing her contributions.  

Impact to retirement pot for women taking a career break from 6 months to 2 years at aged 31: 

It’s not just about having babies

It’s not just career breaks or having a baby that can hamper our future financial wealth. Older women should factor in the potential impact of taking a career break to care for older relatives. By harnessing the power of 1%, women like this could see their retirement pot surpass the £306,377 value by contributing just 1% more into their workplace pension from early on in their careers. Applying the same methodology, the average pot at retirement could increase to up to £335,305 for a woman who contributes an extra 1% to her workplace pension from the age of 25 and then decides to take a six month break later in life. This is over £28,000 more than a woman without any career breaks paying in 8% and over £36,000 more than a woman paying in the minimum 8% with a six-month break.

Impact to retirement pot for women taking a career break from 6 months to 2 years at aged 50:

Harness the power of 1%

The power of 1% is truly undeniable. Even in the tougher economic climate the trick is getting potential future career breaks factored into your pension saving strategy as early as you can and maximising your pot through taking advantage of employer contributions, aiming to increase contributions as your income grows and being consistent with pension planning.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.