'Dream retirement' drives pension contribution increases among mass affluent workers

Two in five mass affluent UK workers who increased workplace pension contributions over the past year said they did so to achieve their 'dream retirement', with the younger generations leading the way, research from Raymond James has shown.

The analysis found that 29 per cent of UK adults with a pre-tax salary of at least £39,000 and £1,000 in accessible cash or savings increased their workplace pension contributions over the past year, 24 per cent increased contributions into their personal pension, and 9 per cent made significant lump-sum payments.

Younger savers were most likely to increase workplace pension contributions, with 37 per cent of both Gen Z and Millennials doing so, compared with 28 per cent of Gen X and just 7 per cent of Baby Boomers.

Achieving a desired retirement lifestyle was the main reason for increasing pension contributions, again particularly among younger savers.

The study found that 44 per cent of Millennials and 41 per cent of Gen Z respondents had boosted contributions for this reason, compared with 25 per cent of Gen X and 24 per cent of Baby Boomers.

The research also found that 33 per cent increased workplace pension contributions to reach retirement goals more quickly, while 28 per cent did so to maximise the time available for their savings to grow.

“It is encouraging to see savers taking control of their financial futures, with younger generations leading the charge,” said Raymond James director of financial planning, Harry Bell.

He added: “With nearly three in ten people ramping up their pension payments and more than a third of Gen Z and Millennials doing so, we are witnessing a shift towards proactive wealth creation earlier in life. This is especially critical with the state pension legislation up for debate.”

However, the research also revealed other reasons why people were contributing more to their workplace pension, including 15 per cent of respondents who had done so to eventually pass wealth onto relatives.

This comes ahead of plans to bring unused pension pots within the scope of inheritance tax from April 2027.

Bell commented: “The findings suggest some savers may still be viewing pensions as a potential estate planning tool despite the proposed changes to pension inheritance tax

treatment, continuing to overfund their pots with the goal of eventually passing this on to relatives.

“With incoming changes bringing unused pensions into the scope of inheritance tax, that strategy may become less effective under the proposed changes, meaning individuals should consider other tax-efficient options if their objective is to pass wealth to future generations.

“By making the most of the pension tax reliefs today, individuals can fund their dream retirement while alive, but must look to other, more tax-efficient avenues if looking to build a financial legacy for their family."

This article originally appeared in our sister publication Pensions Age.

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