Pension tips: Expert explains to use tax reliefs to boost wealth in retirement | Personal Finance | Finance

UK’s biggest pension is worth £11million – expert shares ‘powerful’ tips to boost yours (Image: Getty)

The UK’s biggest tracked by the Office for National Statistics (ONS) stands at approximately £11million, a Freedom of Information (FOI) request reveals.

According to figures collated in 2022, it’s estimated that some 929,000 savers have accrued pension wealth of £1million to £2million, with 128,000 sitting on pensions worth up to £3million. Meanwhile, 46,000 investors are sitting on pensions worth more than £3million.

However, the ONS estimates people need to have a pension wealth of £374,500 to be among the top 10 percent of retirement savers, with the median or typical figure in the top decile standing at £637,500.

For a comfortable retirement, wealth management firm RBC Brewin Dolphin calculates that a person needs at least £37,300 per year to live on. To hit that target, the retiree would need a pension wealth of £630,000 in today’s money.

While this figure may sound daunting, experts at RBC Brewin Dolphin have shared some “powerful weapons” people can use to plan better for retirement.

People would need a pension wealth of £630,000 to live a comfortable retirement (Image: Getty)

Rob Burgeman, investment manager at RBC Brewin Dolphin, said: “Building a war chest for retirement can seem extremely daunting at first, but money saved regularly over long periods can produce quite dramatic results, as the ONS data demonstrates.

“Whatever your income, there are a couple of powerful weapons to be aware of in your armoury when planning for retirement.”

First and foremost, Mr Burgeman suggests people pay close attention to the tax reliefs on offer and more importantly, make the most of them.

He explained: “Making use of tax reliefs is crucial. A basic rate taxpayer saving £80 of take-home pay into a pension gets a £20 top-up from HMRC, making a total investment of £100 – or an instant return of 20 percent.

“Then there’s the mathematical phenomenon of compounding – or interest on your interest. Albert Einstein called it ‘the eighth wonder of the world’ — and who are we to argue with the great man?

“Factoring in tax relief, a £100-a-month plan would only actually cost an investor £80 per month, bringing total contributions to £9,600 after ten years.”

But as a person’s pot grows, they gain interest on their increased amount, meaning their pension wealth could “balloon” to £15,592, assuming five percent annualised returns after fees.

However, Mr Burgeman noted: “The miracle only becomes greater over longer time horizons. Over 20 years, the same plan could see contributions of £19,200 more than double to £41,274. Another decade still and £28,800 could become £83,572. After 40 years, contributions of £38,400 could soar to £153,237.

“There’s no question that the magic of compounding mixed with some sound tax advice makes for an extremely potent cocktail.”

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While an £11million pension pot is untenable for many, Mr Burgeman said “it’s possible” for people “even on modest incomes” to reach millionaires’ row by the time they retire.

He explained: “The Government recently announced it would be supporting a private members bill which would reduce the age of auto-enrolment from 22 to 18.

“Someone entering the workforce today aged 18 and paying £389-a-month into their pension could reasonably expect to retire with a £1million pot aged 68 assuming annualised returns of five percent after fees.”

He added: “Remember, pensions are one of the most tax-efficient ways of funding your retirement. A £10,000 contribution costs a basic-rate taxpayer £8,000, and a higher-rate taxpayer just £6,000 due to tax savings.”

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