Putting extra pay in a pension could reduce the impact of moving into a higher tax band and potentially deliver a six-figure boost to long term savings, new analysis shows. The study from Phoenix Group’s Standard Life found redirecting additional pay, such as overtime earnings, into a pension could help reduce tax liability.

Standard Life’s analysis comes amid reports Chancellor Rachel Reeves may extend the current freeze on income tax thresholds, meaning more Brits would pay more tax as rising wages push them into higher tax brackets. The company’s analysis suggests that individuals earning more overtime than necessary to cover their everyday expenses could use this extra pay to do more than just top up their salary.

The study shows someone who started working full-time on a salary of £25,000 a year and paid the minimum monthly auto-enrolment contributions from the age of 22 could have a total retirement fund of £210,000 by the age of 68, allowing for 2% inflation.

Someone who chose to contribute just £200 of overtime pay a month for the duration of their career, on top of minimum contributions, could build up as much as £344,000 in their pension by the age of 68, according to Standard Life’s study.

It also shows increasing the amount to £300 of overtime pay a month could result in a pot of £411,000 in today’s prices.

But smaller contributions can still make a “significant” difference, the analysis shows.

Someone contributing an additional £100 of overtime pay a month could retire with £277,000 – £67,000 more than if they had only paid the minimum.

Those who work overtime for a limited period could also see a significant benefit if earnings were directed into their pension pot, the study shows.

Standard Life’s analysis found that contributing an extra £200 a month between ages 30 and 45 could boost a pension by £52,000, giving a total pot of £262,000, adjusted for inflation.

Gail Izat, managing director for Workplace Pensions at Standard Life, said: “With income tax thresholds potentially being frozen for longer at the Autumn Budget, rising earnings could push many more people into higher tax bands.

“Redirecting additional pay like overtime into your pension is a smart way to reduce that impact while boosting your long-term savings.”

She said auto-enrolment gives people a valuable start in saving for retirement, but many will need to contribute more than the minimum level to secure a comfortable retirement.

Ms Izat continued: “Adding extra contributions from overtime or other additional income can be a practical, budget-friendly way to strengthen your financial future – and because pensions are tax-efficient, these contributions can help you keep more of your income.

“If you’re unsure of your personal situation, it’s worth speaking to your employer or pension provider for guidance.”