It’s never too late to save into a pension

Pensions and retirement
Views & insights

If pensions weren’t a priority in your 20s, don’t despair – it’s never too late to get serious about longer-term savings


13 September 2021 | 5 minute read

If you’ve read the headlines about the UK’s impending retirement crisis, you might be beating yourself up for not getting serious about pension saving sooner.

We all know that maximising pension contributions from an early age is a sensible move, but in many cases it may not be feasible. You probably had much more pressing priorities in your 20s and 30s – enjoying independence as a working adult, saving up for a house deposit, and possibly starting a family.

Instead of sinking into despair about becoming an impoverished pensioner, think about what you could do today to get your pension savings on track. As the Chinese proverb states: “The best time to plant a tree was 20 years ago. The second-best time is now.”

While it would have been great if you’d made pension saving a priority in your 20s, don’t assume that you’ve left it too late. Our research shows that taking action today could make a big difference to you and your plans for the future.

Are your pension savings on track?

Even if you’ve been diligently saving into your employer’s pension scheme, your pension savings might not afford you the retirement you desire. Auto-enrolment didn’t start being phased in until 2012 and, even then, pension contributions were set at a relatively low level. Anyone who began their career prior to 2012 could find their projected pension value at retirement is much lower than for an employee in their 20s today.

Our analysis shows that if a 25-year-old earning £27,000 a year before tax made pension contributions averaging 5% throughout their career, their pension could be worth just over £360,000 at age 67. This assumes an annual investment return of 5% net of charges and before inflation, and that they receive yearly pay rises of 1.5%, as well as intermittent salary increases in line with promotions and career progression.

This might seem generous, but our research shows that if your starting retirement income was £33,000 a year and your withdrawals subsequently increased with inflation, a £360,000 pension fund could run out by age 80. Bear in mind that £33,000 a year is the amount the average single person needs to fund a ‘comfortable’ retirement, according to the Pensions and Lifetime Savings Association (PLSA)1.

With figures from the Office for National Statistics showing a 67-year-old woman has an average life expectancy of 87 years and a one in four chance of living to 942, there’s a real risk you could run out of money in retirement.

Better late than never

The good news is that increasing your pension contributions now could make a significant difference to the size of your pension fund in the future.

Let’s imagine the same individual increased their pension contributions to 15% from age 40 onwards. Their projected pension value at age 67 would be almost £780,000 – that’s an additional £420,000. Alternatively, if they were able to increase contributions to 20% from age 40, their pension pot could be worth an impressive £980,000 at age 67, based on the same investment and salary growth assumptions as above.

Our research suggests this could be more than enough to fund a ‘comfortable’ retirement. For example, if you had a £980,000 pension pot and started withdrawing £47,500 a year at age 67, you could still have around £200,000 in your pot at age 95. The PLSA’s research suggests £47,500 a year is what the average couple needs for a comfortable retirement, meaning both you and your partner could potentially enjoy a financially secure future. Bear in mind these figures don’t take into account inflation, so £47,500 might not be sufficient in 30 years’ time.

Getting started

Increasing your pension contributions to 15% or 20% might seem impossible, particularly if you still have childcare costs and a mortgage to pay off. As a first step, take a close look at your monthly bank statements to determine how much of your income you could realistically divert to your pension each month. Making relatively small changes, like switching to a cheaper energy deal or cancelling unused subscriptions, could free up money to save for your future.

What’s more, paying extra money into your pension could cost less than you think because of the income tax relief on contributions. If you’re a basic-rate taxpayer, a £100 pension contribution only costs you £80, and if you’re a higher-rate taxpayer it could only cost £60. This generous tax relief is essentially free money from the government, and it makes pensions an extremely valuable way of saving for longer-term goals.

It’s worth noting that workplace pensions aren’t the only type of pension available. It may be the case that putting additional contributions into a personal pension is better suited to your needs. A financial adviser can help you understand which option is right for you.

Next steps

It’s easy to stick your head in the sand when it comes to pension saving. After all, your retirement could still be decades away and, let’s face it, pensions aren’t the most exciting topic. Yet putting a solid plan in place today could make a real difference to your financial wellbeing and peace of mind. It isn’t something you want to get wrong, which is why it’s important to get some really good financial advice. Take control of your finances by speaking to one of our financial advisers today.


2 Office for National Statistics – life expectancy calculator

The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Neither simulated nor actual past performance are reliable indicators of future performance. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

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