Resist making quick choices
All employers must automatically enroll their employees in the workplace pension scheme if they meet the eligibility criteria: the employee must be a UK resident, aged 22 and on a state pension, and earn more than $10,000 a year, $192 a week or £82,822 a month in the 2025/26 tax year.
The total minimum contribution to the workplace scheme is 8%. It doesn’t all come out of your salary, as your employer will match a portion of it and your contribution will be increased through tax relief.
Although your employer should automatically put you into the scheme, you can opt out, and it can be tempting if you’re on a low wage. However, this means reducing free money from your employer and through tax relief. It also means missing out on that money growth.
“The earlier you start, the better,” says Mark Smith, spokesman for Pension Focus, an industry-led campaign. If you opt out, you’re automatically re-enrolled after three years, but Smith says that’s plenty of time to miss out on potential stock market growth. “Set a reminder for a year’s time to see if you can manage it,” he says. “Better, don’t ask to choose to start—see if you can manage financially with this partnership. If you’re really struggling, you might want to think again.”
Balance money priorities
Early in your career you may have priorities that go beyond planning for retirement. If you want to save up to buy a house, for example, there are tough decisions to make. A recent study by pensions provider L&G found one in seven potential homeowners have stopped, paid less or never paid into a pension, preferring to buy a property.
“For many young people, society’s rising costs and pressures to save mean tough trade-offs, including depleting pension savings,” says Kathryn Futeau, director of workplace savings at L&G Retail. “Although understandable, these decisions can have a lasting negative impact on retirement outcomes.”
If you’re saving for a deposit, a Lifetime Individual Savings Account (LISA) can be useful. Lisas let you leave up to £4,000 a year which you can later use to buy a property or help fund your retirement.
You need to be under 40 years of age to open one and till you turn 50, the government will pay a 25% top-up bonus on your balance every year. There is no tax relief on the amount paid, but all amounts are tax-free. Although you can access the funds before retirement, if you withdraw the money before turning 60 for any reason other than buying a home, you will be charged 25% of the Lisa’s value.
Pay more when you can
If a new job offers a pay rise, consider increasing your pension contribution before you get used to having extra money in your pocket. “Check your employer’s policy. If you put in an extra 1%, they might match it—it’s a tax-efficient way for them to pay you more,” says Smith. “Due to the tax exemption and complex working methods, this 1% cost is less than 1% of your take-home pay but can add thousands to your bottom line.”
Hargreaves Lansdowne’s pension calculator shows that a 22-year-old earning at least £25,000 a year in auto-enrolment, 5% from the employee, 3% from the employer, can expect to have saved £155,000 at age 68. will increase their fund, so they will pay 6% and their employees 4%.
Plan around parental leave
“If you can afford to take maternity leave, it’s important to contribute to your pension,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdowne. “The money you are [as the employee] The contribution is based on your wages, so may match your maternity pay, but your employer will continue to contribute based on your salary before maternity leave for the first 39 weeks – some may pay longer. If you are in a salary sacrifice scheme, then your total contribution remains unchanged, as it is classed as an employer contribution.
If you are not eligible for maternity pay, your employer must contribute to your pension for the first 26 weeks, a period known as ordinary maternity leave. Beyond that point, it depends on your contract.
Monitor if unemployed
If you are out of work, your contributions to the workplace scheme will stop, but your pension will be invested. It’s wise to pay attention to your state pension, though.
“Make sure you claim everything you’re entitled to while out of work. Many benefits – such as Jobseeker’s Allowance – automatically carry National Insurance Credit towards building up the qualifying years you need for your State Pension,” says Morrissey. Check your eligibility for NI Credit if you miss work due to care commitments or are on long-term sick leave.
Then, Fouteau says: “When you’re earning again, resuming contributions can help you stay on track.”
do it yourself
One of the most straightforward solutions for self-employed people, whether temporary or long-term, is a stakeholder pension, a retirement plan with minimum monthly contributions along with annual charges.
While £20 a month is better than nothing, it’s not enough to build a substantial retirement fund. According to pension provider Nest’s calculator, paying $20 a month into a stakeholder pension from age 22 to age 68 could net you around £28,000. Paying in £100 a month in that time would mean a pot of £139,000.
This money will be locked away until retirement – if you want to keep access to your money before then, a lifetime Isa would also be suitable here.
Keep track of dishes
By the time you retire, your list of former employers can reach double figures, potentially leaving a trail of as many pension pots.
“When you change jobs, you can either leave your pension wherever you are, move it into your employer’s scheme or into a personal pension,” says Morrissey. “You may choose to consolidate your pension to make it easier to keep track of them, but before you do, make sure you don’t incur any potentially expensive exit fees or miss out on valuable benefits such as guaranteed annuity rates.”
If you have a defined benefit (or final salary) pension, where your payout is based on what you earn and are guaranteed, that said, it rarely makes sense to transfer.
The Government’s MoneyHelper website has general guidance on pension transfers and consolidation, but it’s worth paying for independent financial advice for personal guidance – you can find an adviser on an impartial website.
If you’ve lost track of pension pots in the past, use the government’s pension tracing service to find them. You will need to give them the name of the company or pension provider.
Invest
From the age of 55 (57 after April 2028), you can withdraw up to 25% of your pension tax-free. But, says Smith: “Just because you can, doesn’t mean you should. There are important tax implications to keep in mind.” Once you start drawing from your pension, under the money purchase annual allowance, instead of the standard allowance of £60,000 a year, the amount you can contribute to the pension is reduced by $10,000 for the tax year.
You will also lose any future advances for the withdrawal amount. It is advisable to seek professional advice before drawing your pension: although it can be expensive, it often pays for itself in avoiding mistakes. Free guidance is available for over 50s through the government-backed and impartial Pension Wise service.
