The millions of workers who will get a bit more cash in their pay packet from this month have the perfect opportunity to increase their retirement savings before they get used to having the extra money, say experts. Younger employees could eventually increase their retirement pots by more than £100,000 by diverting their monthly gain from the national insurance (NI) cut into their pension. Last Saturday, the main rate of national insurance contributions (NICs) paid by employees dropped from 12% to 10%. Ministers say 27 million UK employees are benefiting from this reduction, which was announced in November. Someone on an annual salary of £30,000 will have an extra £348 in their pocket each year; for higher earners the gain is up to £754 a year. Many people will need that cash to help with bills and other essential costs such as buying groceries or paying down debts. For those who can afford it, Dean Butler, at the pension provider Standard Life, says it is worth paying it into a pension: “While it’s tempting to see this as extra spending money, it’s worth trying to save at least a portion of it. “Even small additional contributions now could give you a big retirement boost.” Bertrand Pole, at the wealth management firm Evelyn Partners, says workers are often advised to pay more into their pension when they get a pay rise because it will give their long-term finances a significant boost, but they won’t feel any worse off on a month-to-month basis. “The same applies here, as the NI cut is a perfect opportunity to increase retirement savings without making sacrifices,” he says. Evelyn Partners crunched the numbers to see what the potential gains could be. The figures are based on someone’s pension contributions being increased each month by an amount equal to the gain from the NI cut, so their take-home pay stays the same, with tax relief then added. A basic-rate taxpayer will in theory see their income rise by up to £62.83 a month as a result of the NI reduction. If they pay this straight into their pension, it will be worth £78.53 a month because of the 20% tax relief on contributions. Younger workers will enjoy a bigger boost to their retirement savings because there is more time for their investments to grow. According to Evelyn Partners, a 25-year-old basic-rate taxpayer could end up with as much as £134,300 extra in their pot, assuming that they work and save until age 67. For a 55-year-old, the uplift could be £15,500. The figures are higher for higher-rate taxpayers as that £62.83 turns into a £105 contribution because of the 40% tax relief they get. As a result, a 25-year-old higher-rate taxpayer could be up to £179,600 better off by age 67, while for a 55-year-old, there could be an extra £20,800. The calculations assume that people’s pots grow by 5% a year after fees. However, other factors could increase the final figures: for example, some employers will match, or part-match, extra contributions made by employees, which would mean more going into their fund. Instead of carrying on working to their target retirement age and then benefiting from their bigger pot, some of those who divert the extra cash to their pension could decide to retire from work a few years earlier than originally planned. The NI reduction involves “class 1” contributions made on earnings received by anyone between the age of 16 and state pension age who is getting more than £242 a week from one job. It means employees now pay 10% on earnings between £242 and £967 a week.