What a £10-a-day pension habit could be worth

Try to remember the last time you spent £10 without really thinking about it.

Maybe it wasn’t in one go - a coffee and croissant on the way to work, a couple of small things from the supermarket, or an online order placed with a few taps.

It’s easy to lose track of £10 when it disappears in small amounts throughout the day or week. But over a year, £10 a day adds up to £3,650. Seeing that annual figure might make you stop and wonder where it all went.

If you’re able to put some of that money towards something with a longer-term purpose, such as your pension, it could have the potential to grow over time.

Keep that habit going for years rather than weeks, and small, regular contributions could build into something much bigger.

So what could £10 a day actually become by retirement?

When contactless makes spending feel smaller 

Contactless is now an everyday part of our lives. According to UK Finance, it accounts for 76% of debit card transactions and 67% of credit card transactions in the UK, with the average contactless payment under £18.

That may feel convenient, but it also changes how spending feels.

There’s a behavioural idea known as the ‘pain of paying’. With cash, you can see the money leaving your wallet. With contactless, there’s less of a pause between deciding to buy something and paying for it.

So it’s easy to see how £10 here and there might not register as much at the moment of spending.

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How tax relief can boost your pension

Most UK taxpayers get tax relief on eligible personal pension contributions, meaning the government effectively tops up what you pay in. Basic rate taxpayers usually get a 25% top up. For every £100 you contribute, HMRC adds £25. Higher rate and additional rate taxpayers can claim further relief on top of this, usually via Self-Assessment.

For example, when you put in £10 another £2.50 could be added through basic rate tax relief. Keep doing that every day for a year and you'd personally contribute £3,650. After tax relief, £4,562.50 could go into your pension.

*Annual figures are daily amounts x 365. These are illustrative projections only, not a reliable indicator of what you'll actually get back.

Why time matters 

The important thing about £10 a day isn't any single £10 contribution. It's what happens when you continue to contribute over a period of time.

Money invested in a pension has the potential to grow through investment growth and compounding. Over a year or two, the effect isn't dramatic. Over several decades, however, it can become significant.

It also means two identical £10 contributions can have very different amounts of time to grow. A £10 contribution made at 25 years old could stay invested for more than 40 years before you reach your late 60s. The same £10 contributed at 55 years old has far less time to benefit from compounding and potential investment growth. The amount is identical - but the key difference is time.

What £10 a day could be worth by retirement

The table below assumes the same £10-a-day habit throughout - £3,650 a year from you, £4,562.50 a year once basic rate tax relief is added - just started at a different age each time, and kept going until 67.

*Assumes an annual contribution of £3,650 from the stated start age to 67. No employer contribution or existing pension pot, 25% basic rate tax top up, 5% annual investment growth, 2.5% inflation, 0.7% annual management charge.

If £10 a day isn't realistic

Contributing £10 a day might not be realistic for everyone. The same idea can work with an amount that feels manageable for you. £5 a day adds up to £1,825 a year, which could become £2,281.25 with basic rate tax relief. £2 a day adds up to £730 a year, which could become £912.50. 

There are a few things that could help you free up more room to contribute. 

• A pay rise - this could give you the chance to increase your contribution without changing your day-to-day budget.
• The end of a regular cost - for example, the end of a loan repayment or a fall in childcare costs.
• Starting smaller and building up - beginning with an amount you can manage now, and increasing it gradually when your circumstances allow.

The benefits of automation

Regular, automatic contributions have another advantage - you don’t have to keep deciding to make them.

If you’re topping up your pension manually, it’s easy to tell yourself you’ll put some money in at the end of the month. But then something comes up. By the time the end of the month rolls around, that pension contribution can easily slip down the list.

Automatic contributions can make it easier to stay on track. And with PensionBee, you don't have to stress about keeping track of your contributions.

• No minimum contribution level - choose an amount that works for your budget.
• Set it up once - your regular monthly contribution happens automatically. You don't have to remember to make it each month.
• Adjust it anytime - increase, reduce or pause your contributions through your online account (your ‘BeeHive’) whenever your circumstances change.

There’s also a big psychological difference between £10 and £3,650. Finding an extra £3,650 for your pension at the end of the tax year might sound like a serious commitment. Broken down across the year, £10 a day feels more manageable.

The takeaway

A few pounds here and there might not feel like much, which is exactly why they’re so easy to spend without noticing.

But the same idea can work in your favour. Redirect some of that everyday spending into your pension, and those small amounts could add up over time.

You don’t need to completely change how you spend money. Small amounts redirected into your pension could add up to a larger pot over time, without necessarily requiring a big change to your day-to-day spending.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Tax rules can change and benefits depend on individual circumstances. This information shouldn’t be regarded as financial advice.