Resist early opt-outs
Employers should automatically enroll eligible employees in a workplace pension scheme. To be eligible, employees must live in the UK, be aged 22 or older but below the state pension age, and earn at least £10,000 annually, which breaks down to about £192 weekly or £822 monthly for the tax year 2025/26.
The minimum total contribution for these workplace pensions is 8%. This doesn’t all come straight from your salary; employers will chip in some of it, plus the tax relief boosts your contributions.
While employers have to enroll you, you can choose to opt out—something that might look appealing if your income is on the lower side. But opting out means missing out on free money and tax benefits from your employer, not to mention the lost opportunity for that money to grow over time.
Mark Smith from the Pension Attention campaign emphasizes, “The earlier you start, the better.” If you do opt out, you’ll automatically be re-enrolled after three years. But that’s quite a gap to miss potential stock market growth. He suggests setting a reminder in a year to reassess. Better yet, say no to opting out outright if you can manage your finances with that contribution. If finances are really tight, it might be worth having a rethink.
Balance money priorities
When you’re just starting your career, other goals might take precedence over retirement planning. For instance, if you’re aiming to save for a home, you might have to make tough choices. Research by L&G indicates that one in seven recent or aspiring homeowners has reduced or halted pension contributions to focus on property savings.
Catherine Fotiu, Director of Workplace Savings at L&G Retail, notes, “For many young people, rising living costs and the pressure to save lead to tough compromises, often at the expense of their pension savings.” These choices can, unfortunately, adversely affect long-term retirement outcomes.
When aiming for a property deposit, a Lifetime Personal Savings Account (Lisa) may be beneficial. With a Lisa, you can save up to £4,000 each year for buying a home or boosting your retirement savings.
You need to be under 40 to open one, and the government adds a bonus of 25% to your savings until you reach 50. While there’s no tax relief on your contributions, everything you withdraw is tax-free. Just be aware that if you take out money before 60 for anything other than a home, there’s a 25% penalty.
Pay more when you can
If you get a pay raise, think about upping your pension contributions before you settle into your newfound financial comfort. “Look into your employer’s policy. Adding just 1% might prompt them to match it. It’s a smart, tax-efficient way for them to contribute more,” Smith suggests. Thanks to tax breaks and compound interest, an extra 1% will cost you significantly less than you might think but can lead to substantial gains down the road.
According to Hargreaves Lansdown’s pension calculator, a 22-year-old earning £25,000 annually could amass around £155,000 by age 68 with minimum automatic contributions. However, if you boost your contribution to 6% (with an employer match of 4%), your savings could balloon to £194,000.
Plan around parental leave
Helen Morrissey from Hargreaves Lansdown advises that if you can manage to take maternity leave, it’s wise to keep contributing to your pension. Employee contributions are tied to your salary, so these might drop to match your maternity pay, but your employer will still base their contributions on your full pay for the first 39 weeks—and some companies may offer longer support. If you’re in a salary sacrifice scheme, your total contributions should remain steady since they’re treated as employer contributions.
If maternity pay isn’t available, your employer is required to contribute for up to 26 weeks, known as standard maternity leave. After this period, the specifics depend on your contract.
Monitor for unemployment
If you find yourself unemployed, contributions to your workplace pension will cease, but your pension will still be invested. However, it’s essential to keep an eye on your national pension.
Morrissey suggests, “While unemployed, ensure you claim any entitlements. Many benefits, like Jobseeker’s Allowance, automatically grant National Insurance credits, helping build up your pension eligibility.” Also, check your eligibility for NI credits if you step away from work or take leave to care for someone.
Photiou adds, “Getting back to contributing as soon as your income picks up will help you regain your financial footing.”
Try it yourself
For those who are self-employed, whether temporarily or more long-term, a stakeholder pension might be the simplest option. These plans have capped annual fees and a minimum monthly contribution of £20.
While £20 a month is certainly better than nothing, it won’t generate a significant retirement fund on its own. A calculator from Nest indicates that contributing £20 monthly from ages 22 to 68 could yield about £28,000. Conversely, putting in £100 a month over the same stretch might grow to around £139,000.
Keep in mind, your savings are locked until retirement. If you prefer having access to funds before then, a Lifetime ISA could be another option to consider.
Track the pot
As you near retirement, it’s possible you’ve worked for multiple companies and could end up with several pension pots.
Morrissey mentions, “When shifting jobs, you can either retain your pension or transfer it to your new company or a personal plan.” Consolidating pensions might simplify things, but be cautious about potentially incurring higher costs or losing benefits, especially with defined benefit pensions where payments are based on guaranteed earnings.
The government’s MoneyHelper website offers general info on pension transfers, but if you need specific guidance, seeking independent financial advice may be worthwhile. You can find advisors through the Unbiased website.
If you’ve lost track of a past pension pot, the government provides a tracking service. You will need to input the name of your previous employer or pension provider for assistance.
Keep investing
Starting at age 55 (or age 57 from April 2028), you can withdraw up to 25% of your pension without tax. However, Smith cautions, “Just because you’re allowed to doesn’t mean it’s wise. Consider the significant tax implications.” Once you begin withdrawals, the amount you can contribute annually drops to £10,000 based on the Money Purchase Annual Allowance, rather than the standard £60,000.
Withdrawals might prevent you from benefiting from future growth. It’s always advisable to seek professional guidance before making withdrawal decisions. While it could be an expense, it often pays off to avoid costly errors. If you’re over 50, you can access free advice through the Pension Wise service, which is government-backed and unbiased.
