Delaying pension contributions until the end of the tax year could cost savers as much as £24,000 in lost returns over a quarter of a century, according to new analysis from digital pension provider Penfold.
Penfold’s calculations show that someone investing £10,000 at the start of each tax year for 25 years could end up with roughly £24,000 more than a saver who waits until the end of each year to contribute the same amount, assuming 5% annual growth. The gap is driven by the lost opportunity for money to grow over time through compounding – the process by which investment returns generate their own returns, an effect so powerful it has been described as the “eighth wonder of the world.”
The company’s analysis of workplace pension behaviour reveals how widespread this last-minute saving habit has become. One-off pension contributions in March reached up to 4.4 times the average monthly level seen during the rest of the year. Around 22% of all annual contributions are made in March alone, and the average value of those March contributions is roughly three times higher than in most other months.
Chris Eastwood, CEO and co-founder of Penfold, said: “We see this pattern every year. Many people top up their pension close to the tax deadline. It’s great to see people taking action. But starting earlier gives your money more time to grow, and that can make a real difference over time.”
Beyond the simple advantage of extra time in the market, last-minute lump-sum investing also means missing out on the benefits of pound cost averaging – a strategy that spreads investments across regular intervals rather than dropping in a single sum.
How pound cost averaging changes returns
Pound cost averaging, sometimes called drip-feed investing, involves putting a fixed amount of money into investments at regular intervals – for example monthly rather than annually. The mechanism is straightforward: when prices are low, the fixed contribution buys more units; when prices are high, it buys fewer. Over time this smooths out the average purchase price and reduces the risk of investing a large sum just before a market downturn.
Standard Life provides a clear illustration of how this works in practice. If you invest a lump sum of £12,000 and the market then drops over the following year, your investment could end up down 10%. But if you spread that investment out and put in £1,000 each month across the year while the market drops in the same way, you buy into the market at a lower price each time. As a result, your overall investment may only fall by 5%.
The trade-off is that if markets rise rather than fall over the same period, a lump-sum investor would make larger profits than someone using pound cost averaging. But the strategy is widely seen as a way to reduce the emotional aspect of investing – removing the pressure of timing the market – and to encourage consistent saving habits.
Penfold’s data shows that regular monthly contributions remain broadly consistent throughout the year, in contrast to the March spike. That consistency, combined with the power of compounding, can build a significantly larger pension over time. For instance, a one-off £100 contribution left untouched and growing at 5% annually could grow to £383 after 25 years – a simple illustration of how even small, early sums benefit from growth on growth.
The case for consistent contributions
Eastwood emphasised that the new tax year is a natural moment to reassess saving habits. “The new tax year is a good moment to reset,” he said. “Contributing earlier and more consistently can help savers make the most of compounding and build stronger financial futures. Small, regular contributions throughout the year can be a simple way to build a bigger pension over time.”
The UK tax year runs from 6 April to 5 April, and the standard annual allowance for pension contributions in the 2026/27 tax year is £60,000. Savers can also carry forward unused allowances from the previous three tax years, provided certain conditions are met. High earners with an adjusted income over £260,000 face a tapered annual allowance that can reduce to as little as £10,000. Similarly, anyone who has flexibly accessed a defined contribution pension may trigger the Money Purchase Annual Allowance (MPAA), again reducing their limit to £10,000.
While the tax year officially ends on 5 April, processing deadlines for contributions to count towards that year often fall earlier in March, adding further complexity for last-minute savers.
Penfold, founded in 2018 with a mission to make pension saving easier and more accessible, has grown to manage over £1 billion in assets and was voted Best Pension Provider in the 2026 Good Money Guide Investing Awards. Eastwood, who previously worked in M&A and corporate consulting, has also spoken publicly about “sludge tactics” – administrative barriers and slow transfer processes that undermine trust and hinder consolidation in the pensions industry.
The broader context of defined contribution pensions means the final value depends entirely on contributions and investment performance, unlike older defined benefit schemes that guarantee a set income. With the State Pension age rising and the age at which individuals can access private pensions increasing to 57 in 2028, the time horizon for saving is lengthening – making the choice between early, regular contributions and last-minute lump sums even more consequential. Poor investment returns in the early years of retirement, known as sequencing risk, can disproportionately damage income when withdrawals begin, another reason to build a robust pot well before retirement.
