Cash in hand or invest long-term? Savers nearly three times as likely to top up cash savings with spare money than their pension

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• Standard Life outlines the benefits of different savings options for both-short and long-term

People are almost three times more likely to put any excess money into cash savings than into a pension, according to new research¹ from Standard Life, part of Phoenix Group.

Almost two-thirds (65%) of those with a cash savings account would put any spare cash into their savings in the next 12 months, compared to a fifth (22%) who would put any additional money into their pension

Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group comments: “It’s understandable that the majority of people who have any money to spare despite the current cost of living crisis are choosing to put it in their cash savings, where they can access it instantly if they have a sudden expense to cover. Cash savers are also currently benefitting from the series of interest rate hikes this year, with many providers boosting the savings rates they offer as a result. However, it’s important to remember that inflation remains high at 6.8%, meaning the purchasing power of money is still reduced, and savers are actually still losing money in real terms.

“While it’s recommended that everyone has three to six months worth of their salary in a ‘rainy day’ savings account, people who have this covered could consider a longer-term savings option, such as a pension. As pension plans are invested, they provide the opportunity for the pot to grow – and for further gains on that original growth, known as compound investment growth, giving them the potential to beat the rate of inflation. They also offer generous tax relief. Furthermore, those with a workplace pension will also receive contributions from their employer – with some paying in more than the minimum rates required or even matching what you put into your pot – meaning you have additional opportunities to build your fund. Using any spare cash to increase your monthly pension contributions can have a huge impact on your overall retirement pot.

“Demonstrating the potential power of compound investment growth, our recent analysis found if you pay the minimum, 8%, from the start of your career until the age of 45, but then increase them to 12% from 45 until retirement, you could end up with a pension pot £101,000 bigger. Even adding just 1% from 45 would mean £25,000 more in retirement*².”

^{*Assuming 3.50% salary growth per year, and 5% a year investment growth. Figures are not reduced to take effect of inflation. Annual Management Charge of 0.75% assumed. The figures are an illustration and are not guaranteed. Earning limits not applied.}

The pension tax boost

Pensions are one of the most tax efficient ways you can save. Tax relief on contributions is applied at your usual rate of tax, so you’re effectively getting a top-up from the Government when you pay into your pension

Rate of tax*	Cost of £100 pension contribution in take-home pay
Basic (20%)	£80
Higher (40%)	£60
Additional (45%)	£55

^{*Tax bands are slightly different in Scotland, figures based on the rUK income tax structure.}

If you’re a basic rate taxpayer your pension provider will usually claim your tax relief for you. Higher and additional rate taxpayers may need to claim their extra relief by filling in an HMRC Self-Assessment form depending on how their pension is set up. It’s always worth checking whether the relief is being applied on your behalf or if you need to claim it yourself.

Men more likely to put money into pension

Standard Life’s research found that men are noticeably more likely to put any spare cash into their pension in the next 12 months, compared to women. Over a quarter (26%) of men say they are likely to do this, falling to just 17% among women.

Dean Butler continues:“Savers with spare cash will have to weigh up their options and decide where is best to put their money. Having quick and easy access to cash savings provides a safety net during this challenging economic period, while pensions are an effective and tax efficient way of building up a pot for future. Reviewing your current circumstances and longer-term priorities is an important first step to enable you to work out what’s best for your finances.”

ENDS

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Notes to editors:

1 - Opinium conducted research among 2000 UK adults aged 18+ between 23rd and 27th June 2023. Results have been weighted to be nationally representative.

2 - 8% contributions from 22-66 – total pot £461,000

      8% contributions from 22-45, then 12% from 45 – 66 – total pot £562,000

      8% contributions from 22-45, then 9% from 45-66 – total pot £486,000

Calculations assume the following:

Starting Salary	£25,000
Starting Age	22
Employer Contribution	3.00%
Employee Contribution	5.00%
Investment Growth	5.00%
Salary Growth	3.50%
Annual Investment Cost	0.75%

About Standard Life

• Standard Life is a brand that has been trusted to look after peoples’ life savings for nearly 200 years.
• Today it proudly serves millions of customers who come to Standard Life directly, through advisers and through their employers’ pension scheme.
• Standard Life is part of Phoenix Group, the largest long-term savings and retirement business in the UK. We’re proud to be building on nearly 200 years of Standard Life heritage together.
• Our products include a variety of Pensions, Bonds and Retirement options to suit people’s needs, helping our customers to invest and save for their future. We’re proud to offer a leading range of sustainable and responsible investment options.
• We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs and plan a future they feel confident about.
• The value of investments can go down as well as up and may be worth less than originally invested.