Is it worth paying in more?

Jason is 35. He's been saving £40 a month in NEST for a few years.

His retirement pot is now worth about £3,500. He also gets a £30 contribution from his employer each month and £10 tax relief from the government, resulting in total contributions to his NEST pot of £80 a month.

He thinks he'll take his money out of NEST on his 67th birthday. This is also the date when he can start getting his State Pension.

He wonders if he should be saving more. He doesn't have that much to spare each month but he thinks he'll need more than his State Pension when he retires. So he wants to try and get as much as he can from his NEST pot.

Jason looks at NEST's Pension Calculator. He sees that his retirement pot could be worth about £66,600 on his 67th birthday if he continues to contribute to his NEST pot until retirement. The calculator shows him that he may be able to use his pot to:

• take up to £16,900 as a tax-free cash lump sum
• use what's left to get a retirement income of just over £2,720 a year to add to his State Pension. He'll get this income for the rest of his life

But what if he contributed more? Let's see what might happen if he adds to his monthly contribution.

Example 1: Jason pays in £50 a month (an extra £10)

This means there's a total of £92.50 going into Jason's retirement pot every month, including the extra tax relief he gets from the government. It would be higher if he worked for an employer who matched his additional contributions.

If he gets the same rate of return on his NEST investments his retirement pot could be worth almost £75,500 on his 67th birthday. This is an additional £8,900. He may be able to use this total retirement pot to:

• take up to around £19,100 as a tax-free cash lump sum
• use what's left to get a retirement income for the rest of his life, giving him around £3,090 a year to add to his State Pension

Example 2: Jason pays in £70 a month (an extra £30)

This means there's a total of £117.50 going into Jason's retirement pot every month, including the extra tax relief he gets from the government. It would be higher if his employer agreed to match his additional contributions.

If he gets the same rate of return on his NEST investments his retirement pot could be worth over £93,200 on his 67th birthday. This is an additional £26,600. He may be able to use this total retirement pot to:

• take up to about £23,300 as a tax-free cash lump sum
• use what's left to get a retirement income for the rest of his life, giving him around £3,810 a year to add to his State Pension

Important information on these examples

Jason gets basic rate tax relief on his contributions from the government. This comes to 25 per cent of his contributions each month. All contributions are shown in today's money – this is explained at the bottom of this page. The contributions to Jason's pot actually increase each year in line with inflation.

Jason's retirement pot is invested in a NEST Retirement Date Fund. Each year, we've assumed that his pot grows in value because of the return on his NEST investments, minus the charges he pays to NEST. We assume this growth is between two and three per cent more than inflation for every year until Jason's NEST retirement date.

Today's money

All the amounts are worked out in today's money, which means we're showing what Jason's retirement pot may be worth today. This is different from the amount he'll actually get when he takes his money out of NEST.

Here's an example of how today’s money works:

• Sally's NEST retirement date is 30 years away. She's been told that on this date she could get a retirement income of about £100 a week in today's money
• This means her weekly retirement income would be worth about the same as £100 a week is worth today. To put it another way it would buy her the same amount of goods that £100 buys her today
• Prices usually go up over time because of inflation. We assume that inflation will be 2.5 per cent each year. Over time, the effect of inflation builds up so, as an example, in 30 years it will take £210 to buy what £100 buys today
• That means Sally's weekly retirement income could actually be £210 a week. This sounds like a lot more than £100. But because of inflation this £210 would only buy her the same amount as £100 buys today
• That's why we say that £210 in 30 years' time is £100 in today's money