03 Jul 2024

Should I be saving into a pension?

Understand more about saving into a workplace or personal pension

Planning ahead for your retirement is really important. The sooner you start saving for your future the better, because that gives your money more time to grow.

You could rely on the State Pension for support. But in 2024/25, the most you can get is £11,502.40. That sort of income probably won’t support you when you retire. So you’ll need to set some money aside to top it up. And with life expectancy rising, the amount most people need to save is going up too.

Of course, pensions can be complicated and confusing. And if you’re younger, thinking about how much money you’ll need in thirty, forty or even fifty years’ time never feels like a priority. But saving into your pension is a very tax-efficient way of planning for your future. And once you’ve set your payments up, it’ll all happen automatically.

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Self-employed and want to start saving?

If you're self-employed, a Personal Pension could be right for you. You'll enjoy a 25% government top-up, and can start and stop payments whenever you need to.

The benefits of paying into a workplace pension

A pension’s a very tax-efficient way of saving. If you’re a basic-rate taxpayer and wanted to pay in £100 from your salary to your pension, it would only cost you £80 as the government adds an extra £20 on top – known as tax relief. 

Your employer might also match your contributions, up to a fixed amount. That’s an easy, free way of boosting the value of your pension pot.

And pensions are simple to set up. In fact, you’ll usually have a workplace pension plan created for you, if you’re:

  • Employed in the UK
  • Aged 22 or over
  • Earning £10,000 plus annually.

When you’re deciding how much to pay into your pension, you should also remember that:

  • The more you save, the less you’ll take home in cash each month
  • You can usually only access the money once you reach 55 (increasing to aged 57 in April 2028)
  • As with all investments, you might get back less than you put in.

Of course, a pension’s not the only way to save. If you want to access your savings before your mid-50s, a Stocks and Shares ISA could be a good choice. Again, because it’s an investment, you might not get back as much as you put in. And you won't receive the same tax relief benefits you would with a pension.

Pensions and self-employment

If you’re self-employed, you can opt for a personal pension. It’s a great way to start the process of retirement planning. You won’t have an employer to pay any matched contributions and you’ll have to set it up yourself, but you’ll still get tax relief on it. Take a look at our pensions for the self-employed guide to find out more.

Why you should start saving into your pension early

The sooner you start saving, the more time you have to:

  • Put more money into your pension pot
  • Potentially grow the size of your pot
  • Recover from stock market ups and downs.

Of course as with any investment, you’ll face some financial ups and downs. The longer you invest your money for, the more time it’ll have to recover from any falls in value. But there’s no guarantee that’ll happen.

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How much should I be saving into my pension?

There’s no hard and fast rule when it comes to pension contributions. Generally, the later you leave it to begin paying into your pension, the more you might find you’ll need to contribute to make up for lost time. If that’s the case, you might want to take your age, halve it, and pay in that percentage of your salary. So, if you’re 30, pay 15% of your salary into your pension. If you’re 40, pay in 20% of it.

Of course, that only gives you a rough idea of how much to save. You’ll find that the closer you get to retirement, the easier it’ll be to work out how much you’ll need. To plan in more detail, you can:

How you can maximise your pension

There are some simple ways you can boost the amount you’re saving. You might be able to start some of them straightaway:

  • Pay in enough to get all your possible matched employer contributions
  • See if consolidating your old pensions could save you some money
  • Find any pensions you’ve lost track of and make sure they’re still working hard for you
  • Invest any bonus directly from your salary, as it won’t have tax deducted
  • If you get a pay rise, start paying any extra money you can spare into your pension.

What should I do next?

If you don’t already have a pension, you can opt into a workplace pension or set up a personal pension. You can start a pension at any age. And you can normally save up to 100% of your earnings or £60,000 a year into your pot, whichever is lower.

If you’re employed and not sure if you have a pension, ask your employer about their pension scheme. They’ll be able to tell you:

  • What they’ve set up for you
  • How to access your account
  • How much you're paying in
  • How much they’re paying in.

If you’re self-employed and not sure which pension to go for or how much to save, a financial adviser might be useful. You can find one near you at the Unbiased website. Remember that most advisers charge for their services.

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