A guide to saving for your pension

There are a few different ways you can save into your pension. But before that it’s worth looking at the three main types of pensions:

• Workplace pension – These are arranged by your employer, and in most cases the money is deducted automatically from your payslip, and then your employer will either pay in a percentage or match what you pay in.
• Personal pension – This might be a SIPP or any other personal pension type that you set up for yourself. These can be used to help you save alongside your workplace pension scheme, or if you want more control over how your money is invested.
• The State Pension – This is a pension that depends on your National Insurance record. To receive full State Pension, you’ll typically be required to have a minimum number of years of contributions.

One of the key benefits of saving into a pension is the tax relief you can receive as the amount you pay in won't normally be taxed:

• As a basic rate taxpayer, you’ll typically get 20% tax relief on contributions. So every £100 you pay in actually costs you £80.
• If you’re a higher rate, or additional rate taxpayer then you can save even more. Depending on the type of pension you're in you may have to claim any higher or additional tax relief through your self-assessment return.

There’s never a wrong time to start saving for your pension, but usually the sooner you start can help set you up in the best possible way.

For some people, starting to save for a pension starts when they start their first job and are enrolled into a workplace pension. Starting early gives your pension more time to build up over the years, allowing regular contributions to become part of long-term financial planning. Even small amounts saved consistently could make a meaningful difference.

Even if you’re in the middle of your working life and haven’t prioritised saving into your pension yet, it’s important to remember you still have plenty of time to take action. Regularly checking your pension arrangements can help you understand what you’ve already built and identify any gaps. This might be missed contribution opportunities or new investment propositions that could work in your favour.

Even starting later in life doesn’t mean it’s too late to save for retirement. Even though you might have a shorter timeframe before you plan on stopping working, making pension contributions can still help strengthen your retirement income. Taking stock of any existing pensions and understanding your future retirement needs can all play a role in improving your financial position.

The size of a pension pot can vary significantly from person to person depending on factors such as earnings, contribution levels, time spent saving and employment history.

Pension savings in your 30s

By the time you reach 30 your pension pot can often still be in its early stages. Some people in their 20s to early 30s are still building their pensions through workplace pension schemes, with contributions coming from both them and their employers through automatic enrolment.

At this stage the balances of a person’s pension pot will vary widely. There are factors like a person’s salary, when they started working, contribution rates, career breaks and whether you’ve consistently been contributing.

According to the Office for National Statistics (ONS) Wealth and Assets Survey, median private pension wealth for people aged 25 to 34 was £18,000 between April 2020 and March 2022. ^{Footnote [1]} This can give you a rough idea of what you might want to try and aim for, but it’s worth remembering that it will differ considerably between individuals.

Rather than comparing your pension savings too closely with national averages, it can be more helpful to focus on contributing regularly and making the most of any employer contributions available to you. Building pension savings consistently throughout your 20s and early 30s can help create a strong foundation for retirement planning in later life.   

Pension savings in your 40s

By 40, you may have been contributing to a pension for many years and built-up savings across more than one workplace pension scheme. But mid-life might be when earnings, family commitments and financial responsibilities change, making it a good time to review your existing pension arrangements and consider whether your contribution levels still align with long-term retirement goals.

For some savers, this might also be the stage when pension consolidation becomes more relevant. Bringing together your pension pots from previous employers can make it easier to keep track of retirement savings, although whether consolidation is suitable will depend on individual circumstances and the features of each pension.

For reference ONS showed that the median private pension wealth was at £39,500 for those aged 35-44. ^{Footnote [1]}  

Pension savings in your 50s

When you get to your 50s, retirement may begin to feel much closer, prompting you to maybe start taking a bit more of an active role in reviewing your pension savings. It’s often a good opportunity to assess your current contribution levels, revisit your retirement goals and ensure existing pension arrangements still reflect your future plans.

You might also use this time to review your pensions throughout your working life. Checking the values of pensions, tracing any older ones that you might have forgotten about, and consolidating them to get a clearer picture on your overall retirement savings.

The size of a pension pot at 50 can vary considerably depending on factors such as earnings, contribution history, career breaks and how long someone has been saving. According to the Office for National Statistics (ONS) Wealth and Assets Survey, median private pension wealth for people aged 45 to 54 was £80,000. ^{Footnote [1]}  

Rather than focusing solely on how your pension compares with age-based averages, it can be more helpful to consider whether your savings are progressing towards the retirement income you hope to achieve. Regular pension reviews can help identify opportunities to adjust contributions, make the most of available tax relief and stay on track for the retirement you have in mind.

How much you choose to contribute to your pension is just one factor that can influence the value of your retirement savings. The amount built up over time will also depend on factors such as how long you save for, whether there are any gaps in contributions and the type of pension you have.

For defined contribution pensions, the value of your pension can be affected by investment performance and the charges applied to your plan. Career breaks, changes in working patterns and fluctuations in earnings can also affect the amount paid into your pension throughout your working life.

As retirement gets closer, some people may begin to take a more active role in reviewing their pension savings and understanding how they may support their future income. Regularly reviewing your pension situation can help you build a clearer picture of the retirement savings you’ve accumulated across your pensions.

At this stage it’s also an opportunity for you to review important details, like your retirement age, the pensions you hold and any gaps in your planning. Bringing together all the information from different pension providers can make it easier to understand your overall position.

But as you approach retirement it’s important to understand the different options available on how you can access your pension. The choices available can vary depending on the type of pension you have, and the decisions you make may affect how and when you can receive retirement income.

Your provider will typically offer you guidance, tools and information to help you understand your options once your retirement approaches.