Cancelling unwanted direct debits could revive your pension
Cancelling unwanted direct debits could add thousands to Brits’ pension pots, as more people look to rein in unnecessary spending to beef up their retirement savings.
The average Brit wastes nearly £40 a month on direct debits they no longer need or regularly use, such as streaming services, gym memberships and old insurance policies, according to analysis from pension provider Standard Life.
But cancelling direct debits and redirecting the cash into a pension could add as much as £37,000 into the pot, pushing more people into a comfortable retirement.
According to a survey commissioned by Pensions UK, a growing number of people are aiming to become more active in managing their pensions, as financial planners continue to raise the alarm over not saving enough for retirement.
Mike Ambery, retirement savings director at Standard Life, said: “Unused direct debits have a habit of quietly draining our bank accounts in the background.
“Redirecting just a few of those forgotten payments into your pension could make a meaningful positive impact to your financial future.”
Benefits of scrapping direct debits
Analysis shows that for a person entering full time employment at the age of 22 on a salary of £25,000, paying the minimum employee contribution into a pension could build a pension pot of £210,000.
But by redirecting £39 of unused monthly direct debit into a pension, retirement funds could increase to £247,000.
Meanwhile, those who opt to cancel double that amount, totalling around £78, could add £73,000 to their pot.
Ambery said: “If your retirement is decades away, pensions might not feel urgent but small changes made early on can have an outsized impact thanks to tax relief and the potential power of compound investment growth.”
He urged people to double check terms and conditions of cancelling any direct debits or subscriptions, in order to avoid potential penalties and damaging impacts on credit scores.
Recovering lost pension pots
Apart from using unused direct debits, Brits can also refresh their pensions through hunting down lost pots.
Some three million pots are waiting to be claimed in the UK, with an estimated £31bn locked as many people forget to collect their pension upon moving jobs.
With the end of the tax year approaching, checking allowances could also boost savings.
Ambery said: “It’s worth checking whether you can make your money work harder. Most people can contribute up to £60,000 a year, or 100% of their earnings if lower, into their pension and benefit from tax relief.”
Savers can also carry forward unused allowances from previous years, which is particularly helpful for those who have received a pay rise or a bonus.