Working from home could increase your pension fund by £160,000

Working remotely can be advantageous for a variety of reasons, but for those who want to increase their pension, it may be able to raise it by thousands of dollars

As some argue for the flexibility of working from home, others call for a return to the office after the pandemic, making remote work a political battleground. According to recent research, working from home could actually increase your pension by at least £160,000.

Even though the benefits and drawbacks of working remotely are still up for debate, the money saved by working from home instead of commuting could result in a much larger retirement income.

Most people don't have enough money saved for their pension. A recent study found that millions of people are reaching retirement with only £3,650 annually in private savings. Even though the typical saver wants to live comfortably in retirement with over £30,000 annually, many pensioners will run out of money after just 11 years.

According to the Standard Life analysis, workers who work from home even a few days a week and put the money they save on their commute into their pension instead may see a sizable increase.

Mike Ambery, Standard Life's managing director for workplace pensions, stated: "It's more crucial than ever for people to think about when and how they can top up their pension in order to maximize their retirement income, as the majority of UK adults are currently undersaving for retirement.

Businesses and individuals have different needs, and there is a continuous debate about how to strike the correct balance between working from home and the office. It is worthwhile, nevertheless, to take into account how the financial aspects of various work arrangements may affect longer-term objectives, such as retirement.

With hybrid working, how much could you save?

Many people are out of pocket before they even arrive at work because of the high cost of operating a car and the high fares for the rail and tube.

According to SpareMyTime, commuters who work five days a week pay an average of £3,454 annually to take the train to work. This will be significantly higher in certain UK locations, such as London.

On average, people who have the option to work from home three days a week could save 2,072 point 40 annually by cutting their commute costs to 1,381 point 60.

They could receive hundreds of thousands of pounds in retirement benefits if they contribute these savings to their pension.

A person could accumulate an extra 117,000 in their pension pot by the time they retire if they worked from home three days a week and contributed the savings to their pension, given the average cost of commuting in Manchester.

The commuters in London and Glasgow could save 236,000 and 109,000, respectively.

How hybrid working affects pension savings.

Consider a post-pandemic individual who works full-time, earns £25,000 annually, and has been making the required minimum 8 percent monthly auto-enrollment contributions since the age of 22.

According to a Standard Life analysis, they could have £210,000 saved for retirement by the time they are 68 years old, assuming a 2 percent inflation rate during that time.

However, a person in a hybrid role could accumulate up to 370,000 in their pension pot by the age of 68, plus an additional 160,000, if they decided to pass on their 2,072.40 commuter savings over the course of their career.

People who work from home more often and save money on their commute could end up with an even bigger pot if they included these expenses in their pension.

A person who works from home four days a week from the age of 22 to 68, for instance, could increase their retirement fund by 213,000.

With the money saved up in a pension, remote workers who work five days a week could increase their retirement fund by an additional 266,000.

However, the advantages of remote work are not limited to younger employees; those over 50 can also benefit.

"Flexible work can be a game changer in helping workers balance employment alongside caring responsibilities or to better manage their physical or mental health," said Catherine Foot, director of Phoenix Insights, the longevity think tank of Phoenix Group.

"For workers 50 and older, having flexibility in terms of where and how they work is especially important because it helps them think differently about how and when they work, save money, and retire.

"This could significantly impact their ability to continue working for as long as they require or desire, lowering the risk of them leaving the workforce and allowing them to accumulate retirement savings."

Source: The Standard Life. assuming annual growth in salaries of 35% and annual growth in investments of 5%.

Ambery of Standard Lifes stated: "Since the pandemic, employees have had several advantages thanks to flexible work arrangements, such as the chance to reduce their transportation expenses. Although it may be tempting to use any savings for immediate needs, putting them into your pension could have a significant long-term impact.

Our calculations show that, thanks to the power of compound investment growth, working from home even one day a week could have a significant impact on your eventual pension pot if you were to pass those savings on in additional pension contributions over the course of a career.