Bank Holiday pension hack could boost retirement pot by more than £3,000

Senior/elderly Couple At Home With Bills
-Credit: (Image: Getty Images/iStockphoto)

Millions of workers could reap a £3,100 bank holiday boost if they are signed up to a workplace pension scheme.

New figures shared by Lloyds Bank and Scottish Widows show that an employee earning £26,000 would see their employer contribute around £37 a year through the scheme across the nine bank holidays. If the member of staff was enrolled into a workplace pension scheme from the age of 22, and retired at the age of 68, then this would add up to an extra £3,100 in the pension pot reports The Mirror.

The growth of the pension could be even higher as the figures do not take into account inflation or pay rises. Under current rules, employees are auto-enrolled into a workplace pension when they are aged 22 and older and earn above £10,000 - although the age is due to be lowered to 18, it adds.

The minimum auto-enrolment contribution is 8% of qualifying earnings before tax. This is made up of the employee paying in 5% and then the employer paying in the remaining 3%.

While this means employees giving up part of their take-home pay, as they are saving from their current salary, the contributions come from their pre-tax salary, meaning they are probably spending less than they think.

There are plans to lower the age of auto-enrolment is to 18, which means workers will be encouraged to start saving for their retirement from a far younger age. The lower earnings limit - the minimum level of earnings on which they and their employer have to pay contributions - is also being abolished.

The limit is currently set at £6,240. The Government has previously said these changes will be brought in by the mid-2020s.

Robert Cochran, retirement expert at Scottish Widows, said: “Saving into a workplace pension is a real no-brainer as it is the most tax-efficient way to save for the long-term and the advantages of your employer contributing towards your pension are well worth it. A pound saved into a workplace pension can double from day one - thanks to employer contributions, compound interest and tax relief.

"So, while it’s never too late to start saving, a pound saved by someone in their twenties can bring four times as much buying power as a pound saved by someone in their fifties.”