Overtime pay could boost retirement income by £125,000 – Standard Life

With most UK adults currently under-saving for retirement, research by Standard Life has highlighted the difference that could be made by using overtime pay to make additional pension contributions.

Since 2012, all employers have been required to enrol eligible employees – those over 22 years old and earning over £10,000 a year – into a workplace pension.

The current minimum contributions are 8% of the employee’s salary amount – 5% from the employee, and 3% from the employer.

Some industries, like manufacturing and construction, routinely offer paid overtime at typically 1.5-times the normal rate of pay, potentially creating a sizeable extra pool of earnings to dip into.

Standard Life analysis found that someone who began working full-time with a salary of £25,000 a year and paid the minimum monthly AE contributions from the age of 22, could have a total retirement fund of £192,000 by the age of 66, allowing for 2% inflation over the period.

However, someone who chose to contribute £200 of overtime pay a month for the duration of their career, on top of their minimum contributions, could build up as much as £317,000 by the age of 66 – £125,000 more.

Someone who chose to contribute an additional £300 of overtime pay a month could potentially end up with an even bigger pot of £380,000.

Gail Izat, managing director for workplace pensions at Standard Life, said: “While putting the minimum required into your workplace pension is a great way to start saving, for most people auto-enrolment minimums aren’t high enough to secure a decent standard of living in retirement.