Upping investment or pension contributions in line with inflation can increase the size of saving pots by up to £124,000 over 40 years, research from Interactive Investor has found.

According to data from the Office for National Statistics (ONS), the average wage rose by 5.6 per cent this year, meaning that that average full time UK worker on around £35,000 enjoyed a pay rise of nearly £2,000.

Alongside rising wages, interactive investor said that "there is finally light at the end of the tunnel" as inflation fell to 3.4 per cent in February.

With many Britons receiving a pay rise ahead of the new tax year, Interactive Investor's calculations showed the impact of upping investment contributions with inflation, over a long period, compared to keeping contributions at the same level.

This revealed that a pension saver contributing £250 a month (£200 contribution plus £50 tax relief) could end up with around £124,000 more pension wealth by retirement due to upping their pension contributions by 2 per cent each year.

Likewise, an investor making regular monthly contributions of £200 outside their pension could end up with around almost £100,000 more after 40 years if they increase their contributions by 2 per cent, assuming annual pay rise is in line with the target inflation level each year.

Interactive Investor head of pensions and savings, Alice Guy, said: "With many Britons enjoying pay rises this year, the new tax year is a great time to think about upping your regular investments or pension contributions.

"You can give your future self a massive pay rise by keeping an eye on your regular investments and inching them upwards over time. In contrast, the cost of not increasing your contributions can have a big impact on your future wealth, meaning you contribute less and less in real terms as time goes by.

"Many people with workplace pensions will see their contributions increase automatically if they get a pay rise as their contributions are based on a percentage of their salary.

"But that’s not the case for self-employed workers or those who are saving extra pension contributions into another pension like a SIPP. And even if you have a workplace pension it’s worth thinking about upping your contributions if you can afford it as the minimum contributions often aren’t enough for a comfortable retirement."

This article originally appeared on our sister title, MoneyAge.

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