THE IMPORTANCE OF SAVING INTO YOUR PENSION EARLY

You won’t be able to access your pension savings until age 55, however this is increasing to age 57 in 2028, and will likely increase again the future. 

So we understand that for many, pensions and retirement seem like a long way off and other aspects of your finances take priority in the short to medium term. But it’s important to start saving into your pension early, so that you have longer to save towards your desired retirement lifestyle.

Our most recent Retirement Report (PDF, 4.2MB) found that 38% of UK savers aren’t on track for a minimum lifestyle in retirement, and this increases to 47% when we look at just savers who are aged 22 – 29. Using the metrics set by the Pensions and Lifetime Savings Association, a minimum lifestyle in retirement means having approximately £14,400 per year to live on. For many, this will likely not be enough.

While this research found a high proportion of younger savers not currently on track for a moderate or comfortable standard of living in retirement, this is understandable based on current behaviours such as lower levels of pension engagement and a focus on other priorities, such as buying a house. However, this demographic also has the most opportunity to take control of their retirement preparation and improve their retirement outcomes.

Having enough to meet your needs in retirement simply comes down to how much you have saved. So the earlier you can start saving and building up your pension pot, the better. And since your pension savings are invested, the longer you save and more savings you have, the more time they have to potentially grow.

When should I start saving into my pension?

The earlier you can start saving the better, but ideally in your early 20s and when you start your first job. 

How do I start saving into my pension?

If you meet the minimum criteria, you will automatically be enrolled into your employer’s workplace pension. This is called auto-enrolment. The advantage of this is that not only do you pay into your pension, but your employer will too, and you’ll normally get tax relief from the Government as well.

You can find out more about auto-enrolment, and workplace pensions in this short film.

If you’re self-employed, you can take out a private pension through a pension provider. You won’t receive employer contributions, but it’s still a tax efficient way to save for your retirement.

How do I know how much to save?

We recommend you should be saving at least 15% of your pensionable salary into your pension. This might sound a lot but remember this is made up of both you and your employer’s contributions. For many employers, if you choose to increase your regular contributions, your employer might increase theirs too, so we recommend you speak to your employer to review your options.

Having something to compare yourself to is a great first step in understanding how much is enough to keep your pension savings on track. Try taking a look in our Pension Mirror  which will guess your age, before showing you what people the same age have saved in their pension.