How a pay rise can equal £10,000 extra in your pension

Authored on
03 May 2024



The start of the new financial year tends to be when many of us really think about our own financial circumstances.

Increases in average wages have finally overtaken inflation, those on the National Living Wage have enjoyed chunky pay increases, and employees felt the benefit of the cut to National Insurance when they received their April pay. 

While prices haven’t been rising as quickly as they were last year and some things like the energy price cap have actually come down, many of us are still finding the cost of living a bit of stretch, so it’s understandable that many of us might be thinking about ways to have that awkward conversation with the boss.

Pushing for a pay rise

Employers have their own sums to add up and a survey carried out by the Chartered Institute of Personnel and Development at the start of the year found that most expected to increase pay by less than they did the previous couple of years.

So, how do you go about persuading your boss to stretch a little further for you? It’s a question that’s especially important for women.

Recently released figures showed that the gender pay gap has fallen to a record low, now at 11.6%. This equates to women earning 88p for every £1 a man makes on average.

Progress is slow - seven years ago when it became mandatory for companies to publish the information, the gap stood at 12.8%, but the figures are at least trending in the right direction.

A narrowing of the gender pay gap should come a narrowing of the gender investment gap, which came in at an incredible £1.65 trillion, according to research carried out when the AJ Bell Money Matters campaign was launched.

Every pay rise over the company-wide increase helps narrow both gaps.  And yet, three in five women have never asked for a pay rise and only a third of the women who have taken that step were actually successful (according to an Opinium/AJ Bell nationally representative survey of 4,000 UK adults carried out in June 2023).

It’s never going to be a comfortable conversation but there are a few key steps you can take to help bolster your confidence and hopefully increase the chances of success. If you manage to secure a little bit extra in your pay packet, could you do more with it than watch it vanish into your monthly expenditure?

For someone on an average median salary of £32,604, a 1% increase equates to just a few hundred pounds a year – or the equivalent of a tasty takeaway for two people once a month.

But if you invest that 1% into your pension, you could plump up your pot by a healthy £10,008. That assumes you invest the extra 1% for 20 years, your salary rises with an inflation of 2% and gets an investment growth of 6%.

If you can get your employer to increase their contributions to your pension pot at the same time, that sweetens the deal even more, and because you’re adding to an existing pot, the magic of investing is likely to make that 1% grow even more.

It’s hard to think about future needs when today’s budget needs a bit of TLC, but when you consider that the Pension Policy Institute recently reported that women would need to save for an extra 19 years to close the gender pension gap, every little really could help.

1. Timing is important

If your employer is in financial difficulty, you are unlikely to find a responsive ear but there are other dates that might help you take that difficult step.

Ahead of your company’s new financial year - when budgets are being set - can be an opportune moment, as can your work anniversary.

2. Know your value

You might know that you’ve put in extra hours to successfully deliver a big project, but does your boss? If your responsibilities have changed or if you’ve completed additional training, those are things which make you more valuable.

Don’t be shy about spelling out all the reasons you’re worth more. It might feel uncomfortable but if you write everything down, it makes it easier to make the pitch. It’s also worth taking time to look at starting salaries for comparable roles to find the industry standard and provide you with a solid argument for a pay increase.

3. Be prepared and be realistic

Don’t just send a quick email asking for more money – that’s not the way to best make your case.

Ask for a face-to-face meeting, or, if you work remotely, schedule a video call. Present your evidence clearly and concisely and provide examples of when you’ve delivered over and above what your role requires.

4. Be bold but be prepared to compromise

Other businesses might be paying more for your role but your employer might not be in a position to meet those levels right now.

Can you agree a timeframe for additional pay rewards if you continue to hit your targets or take on more responsibility?

You’re unlikely to be successful every time you ask for a bit more cash, but if you’ve picked your moment and backed up your request with solid evidence, you stand a good of chance of getting what you wanted.

We don’t offer advice, so it’s important you understand the risks, if you’re unsure please consult a suitably qualified financial adviser. The value of your investments can go down as well as up and you may get back less than you originally invested. Pension rules apply.

These articles are for information purposes only and are not a personal recommendation.