Is it ever too late to start saving?

Reasons to opt-in to your workplace pension when you're over 55

There are a lot of older people who simply think they are too old to save – that they’ve missed the boat. But actually, it’s almost always better to pay into a workplace pension than to take the money you would have contributed as salary instead – even if you’re over 55. 

It’s free money

Opt-in to a workplace pension and you’re effectively signing up for free money. Regardless of your age, you get the benefit of tax relief and an employer contribution.


Thanks to tax relief, £100 into your pension only costs you £80 if you're a basic rate taxpayer (or just £55 if you pay tax at the highest rate). It means that the net cost coming out of your pay packet will usually be less than the full amount going into your pension. For example, if 5% of your gross pay equals £200 a month, the net cost to you will usually be just £160. The net cost of a £200 gross contribution could be as low as £110 if you pay tax at the additional rate. If you are a higher or additional rate tax payer, you will need to claim your extra tax relief through your self-assessment form.

Employer contribution

Under auto-enrolment regulations, a minimum of 8% of your gross salary between £6,240 and £50,270 (2022/23 tax year) must be paid into your pension. 

This is split between the contributions made by you and your employer, but your employer is legally obliged to pay in at least 3%. If your employer chooses to pay in more than 3%, this reduces the amount you have to pay to reach the minimum level.

Some employers disregard the lower and upper earnings thresholds and calculate contributions based on the whole of your gross salary instead, which also affects how minimum payments are worked out. Of course, you may choose to pay in more than the minimum and you may find that, if you pay in more, your employer will too. It’s worth checking with your employer how they calculate your pension payments.

You can’t lose your pension

There’s no minimum service period required to qualify for a pension. So even if you think you’ll stop working in a year or two, it won’t be taken away from you. And, when it comes to saving for retirement, every little really does help.     

Maximise tax relief

You can normally get tax relief on personal pension contributions of up to 100% of your taxable UK earnings, although you will have to pay a separate tax charge on contributions in excess of an overall yearly limit known as the annual allowance. The standard annual allowance for 2022/23 is £40,000, but your own allowance may be lower than this. If you earn more than £200,000 (excluding any pension contributions) and £240,000 including pension contributions, you will be subject to the Tapered Annual Allowance, which may reduce your annual allowance to as little as £4,000. You can find more details on tax relief here.

Once you’re able to withdraw money from your pension, you can still opt in to a workplace pension. But the moment you take a taxable amount from your pension, new annual contributions into all the Defined Contribution (Money Purchase) pensions you hold, including your workplace pension, are limited to a total of £4,000, rather than the normal £40,000 a year before a tax charge will apply. This is called the Money Purchase Annual Allowance (MPAA) – read more details in our article on tax relief.

When it could make sense to opt out

There are certain situations where it may be worth considering opting out of your workplace pension. This could include: if your pension is more than the Lifetime Allowance (LTA), which is £1,073,000 in 2022/23; if you have a form of LTA Protection; or if you expect your pension to exceed the Lifetime Allowance by retirement. Many people in this situation deliberately opt out to avoid high rates of tax on any excess savings over the Lifetime Allowance. Anyone with this level of pension savings should speak to a financial adviser to determine the most appropriate course of action.

Speak to our pension experts

We offer free pension support and you can get tailored financial advice too. So if you’re struggling to get your head around your pension or have questions about your options, we can help.