A coffee break that could boost your retirement

Saving just £2.50 every working day could result in an extra £187,000 in your pension pot, according to new calculations from Friends Life.

Small economies like cutting out a daily coffee or a slice of cake, opting for a simple sandwich over a posh baguette and swapping bottles of designer water for tap could result in an annuity of £3,120 a year based on today's terms - more than enough to fund a daily coffee break in retirement.
 
Here's how these small savings could add up:

A 20-year-old saves £2.50 a day for 20 working days a month and pays it in to their company pension (£50).

Adding back in basic rate tax takes this to £62.50. We assume a matching employer pension contribution, which means a monthly contribution of £125.

If the person saves at this rate (£125 a month) with no increase for a period of 10 years, that would result in a total contribution of £15,000. The person could still continue to save for another 30 to 40 years before retirement if they chose to, but we've assumed they go back to drinking coffee at age 30.

Based on a fund growth rate of 7% and a charge of 0.5% the fund value would be worth £187,000 at age 65, which would purchase an annuity of £3,120 a year based on today's terms.

Colin Williams, Managing Director, Corporate Benefits at Friends Life said: "The recent cold and dreary weather means that resolutions to do more exercise and to eat more healthily are likely to have taken a back seat for many of us in the past few weeks, especially when they involve forgoing a ‘treat' that helps to get you through the working day. However although we've all been told that small changes can make a big difference, when the reality is worth £187,000 - or an extra £3,000 a year in retirement - it really does seem worth making that extra effort."
 
Note: The value of your pension is not guaranteed, and can go down as well as up. You could get back less than the amount you paid in.