Savers could pocket £40,000 in “free money” for their retirement by using a pension “double bubble” trick.
It involves saving money through a Lifetime ISA (LISA) which is a type of savings account used for buying your first home, or saving toward retirement.
You can save a maximum of £4,000 each year into a LISA account and the government will match your savings by 25%.
So if you saved the maximum £4,000 sum, you’d get a bonus of £1,000 each year.
You get the 25% tax-free bonus on smaller amounts too, if you can’t afford to save £4,000 over the year.
For example, if you saved £1,000 over 12 months, you'd get £250 free from the government.
LISAs are available to those aged 18 to 49 - so you can’t continue saving beyond your 50th birthday.
But if you've been been able to save the maximum amount during this time, you could end up with £483,000 in your LISA pot, assuming 4% annual investment growth.
This is according to Tom Selby, head of retirement policy at investment platform AJ Bell.
You can only access LISA money after you turn 60 so you’d need to wait ten years until this point to withdraw any cash.
Providing you don’t need to spend this money at 60, Mr Selby says there is then another way to boost your retirement pot by thousands more pounds.
If you moved £32,000 of your LISA fund into a self-invested personal pension (SIPP) each year, you could benefit from £8,000 a year in basic-rate pension tax relief.
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Carry this on for the next five years, until you reach age 65, and you'll have an extra £40,000 for your pension pot in tax relief alone, according to AJ Bell research.
Investing your retirement savings in a SIPP may not be for everyone and you should do your research first before deciding if this is right for you.
SIPPs are generally for people who understand investing and are prepared to leave their cash for a long time.
They effectively work like a DIY pension as you control and managing your own investment - which means your money can go up or down.
Mr Selby said: “People using a Lifetime ISA (LISA) for retirement saving could have the opportunity to get ‘double bubble’ on their bonuses when they reach their 60th birthday.
“An 18-year-old paying the maximum into a LISA until their 50th birthday and enjoying 4% annual investment growth could have a fund worth £483,000 by the time they reach age 60.
“If this isn’t juicy enough, provided they have sufficient earnings (and are not subject to the money purchase annual allowances) they could reinvest up £32,000 a year of this cash in a pension, benefitting from £8,000 a year in basic-rate pension tax relief.
“If they do this for five years, they’ll have added an extra £40,000 to their retirement pot in tax relief alone.”
What to be aware of before opening a LISA
The starting point for any retirement saving should always be your workplace pension, if you're eligible for one, according to Mr Selby.
This is because you'll benefit from upfront tax relief and a matched employer contribution.
You can also have a LISA alongside a workplace pension scheme.
For pension savings outside of the workplace, the benefits of using a LISA for your pension savings depends on which tax bracket you're in.
If you are a higher or additional-rate taxpayer, the tax relief available from a pension – at 40% or 45% - is significantly higher than the 25% upfront LISA bonus.
Mr Selby said: “For retirement savings outside the workplace – or for people who don’t benefit from automatic enrolment such as the self-employed – whether or not a LISA is the right option will depend on your personal circumstances.
"For basic-rate taxpayers the combination of an upfront bonus and tax-free withdrawals from age 60 makes the LISA an intriguing retirement saving alternative – particularly when you consider the opportunity to use the tax-free funds to benefit from additional pension tax relief at age 60.
“It’s important to remember that withdrawals from pensions will be taxed as income.
"However, in most instances, 25% of withdrawals are tax free and you can minimise your tax bill by drip-feeding withdrawals over time to make use of your personal income tax allowance."
Finally, actual investment returns will vary depending on a number of things, including the mix of assets someone holds and the charges you pay.
And of course, investment returns are never guaranteed.
