If I had to consider the biggest question facing my pension, what would it be?

Is it invested right? Am I contributing enough? Should I consolidate my pots?

These are all reasonable questions.

But no, the biggest question I have for my pension is ultimately – will it be enough? And how do I even work out what enough is?

Fortunately, the Pensions and Lifetime Savings Association (PLSA) has answers. So let’s go on a pension savings journey.

Age is just a number

I am 36 years old. I work a desk job, so assuming my brain (and fingers) hold up I could have a career that spans another 30 years easily.

Now, I started work in 2012, but I only opened my first pension in 2016. In the intervening period, I’ve accrued just over £34,000 into my overall pot.

Finding this number actually surprised me, I had thought it would be lower (especially considering this year’s market shenanigans).

So back to my question – is that enough? Turns out I might need that pension to be worth just under £1 million to retire on. Uh oh.

Retirement living standards

The PLSA compiles generalised figures for what it constitutes as either minimum, moderate or comfortable retirement income standards.

It released the latest iteration this week.

For the purposes of this thought experiment, let’s go for the middle ground option here. For what the PLSA calls a moderate retirement in 2025 I would need to be able to generate around £32,000 in income each year. This excludes housing costs and assumes you own your home without a mortgage (I do, fortunately for me).

If you include the full state pension at just shy of £12,000 a year then your pension would have to generate around £20,000 a year in income.

To do this you would need a pot of around £510,000 (based on drawing down 3.5%) a year – in today’s money.

This is well and good, but these are figures for someone retiring TODAY.

So what about me, in 30 years?

To save you the complicated further sums, I’ve worked out I’ll need a pension of just over £925,000 just to achieve a moderate income of £58,000 (assuming 30 years of average 2% inflation) in 2065.

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Confounding factors

There are some confounding factors here to be aware of:

• Being married reduces the per-person income requirements. I am fortunately married and my wife is younger than me by three years so hopefully that persists as it would make the target pot size smaller.
• State pension will likely not kick in for me until I turn 70 which means I have to front load some of my income depending on when I retire.
• I’ve assumed the state pension will still even exist (lol).
• I haven’t accounted for things like tax-free lump sum.
• Nor have I accounted for future tax changes.
• I’ve made a bunch of general assumptions about inflation that might prove optimistic (too low) in time.
• I haven’t accounted for my other assets which might generate a future income or windfall, such as my home or my Lifetime ISA.

Before things get boring the point here is that pensions are very complicated.

This is what I chatted to Clare Moffat about on this week’s podcast. I asked Clare to share the most common pension questions she gets in her work as a tax and pensions expert at mutual insurer Royal London.

In short, people are grappling with even the most basic aspects of their pension – before we get into the mad stuff like Money Purchase Annual Allowance (MPAA) and all that jazz.

I’ve never finished a conversation feeling more like I needed some actual financial advice to make it happen.

But I still haven’t answered my original question – is it enough?

To hit that fabled £925,000 pot – I’d need my current contributions and pot to return just under 9% per year. That’s pretty ambitious. Or is it?

I’m mostly invested in global index trackers – including Fidelity Index World. This fund has returned 8.81% over five years.

Including investing charges and pension pot charges I’m likely to fall a bit short. But boy, it is closer than I thought it might be.

Photo credits: Pexels

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The Pensions and Lifetime Savings Association (PLSA) has released its latest Retirement Living Standards update, revealing a notable decrease in the cost of a minimum retirement lifestyle, while moderate and comfortable standards have seen increases.

The changes are driven by lower energy prices and shifting public expectations on retirement income levels.

For a two-person household, the cost of a minimum retirement lifestyle has dropped to £21,600 annually, down £800 from previous levels, while a one-person household now requiring £13,400, a £1,000 reduction.

The decline is largely attributed to a significant fall in energy costs, with weekly domestic fuel budgets for a two-person household at the minimum level decreasing by £12.44 and by £8.82 for one-person households.

These savings reflect broader economic shifts, including lower energy prices, which have eased financial pressures for retirees at this level.

Zoe Alexander, director of policy and advocacy at the PLSA, said: “For many, retirement is about maintaining the life they already have not living more extravagantly or cutting back to the bare essentials. The Standards are designed to help people picture that future and plan in a way that works for them.

“Everyone’s situation is different, and contributions should be manageable. But if your circumstances improve, even small increases can make a big difference to your future.

“This year’s findings show that costs can go down as well as up. But planning matters more than ever. Whether you’re on your own or sharing your future with someone else, these Standards are here to help savers picture and plan their retirement – with real figures, real choices and real flexibility.”

The Retirement Living Standards, calculated by Loughborough University’s Centre for Research in Social Policy, are based on in-depth discussions with UK residents to define three retirement lifestyles: Minimum, Moderate and Comfortable.

While the minimum standard saw reductions, the moderate and comfortable standards have risen slightly due to inflation across various expenditure categories, though lower energy costs – down £16.74 and £15.38 per week for two- and one-person households, respectively – helped offset these increases.

Professor Matt Padley, co-director of the Centre for Research in Social Policy at Loughborough University, said: “Our research on what the public agree is needed in retirement at these three different levels continues to track changes in expectations, shaped by the broader economic, social and political context.

“The consequences of the cost-of-living challenges over the past few years are still being felt, and we’ve seen some subtle changes in public consensus about minimum living standards in retirement, resulting in a small fall in the expenditure needed to reach this standard. 

“In these uncertain times, planning in concrete ways for the future is ever more important, and the RLS help people to think in more concrete ways about what they want their retirement to look like, and how much they will need to live at this level.”

Public discussions also highlighted evolving expectations for the Minimum standard, with small adjustments in spending on clothing, hairdressing, technology, taxi use, and charitable giving. However, rail travel budgets increased, rising from £100 to £180 per person annually, reflecting higher fares and greater reliance on trains for longer journeys.

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This year’s update introduces new terminology, replacing “single” and “couple” with “one-person” and “two-person” households to better reflect modern retirement living arrangements.

A PLSA survey found that 75% of people live with family members, 22% live alone, and 3% share with non-family members. Looking ahead, 77% of non-retired individuals expect to live with someone in retirement, with only 12% preferring to live alone, signaling openness to shared living to reduce costs.

The RLS serve as a guide, not a rigid target, encouraging retirees to tailor plans to their lifestyles.

Alexander urges savers to consider pension contributions beyond the 8% automatic enrolment default, suggesting 12% or more for a better chance at their desired retirement.

Photo credits: Pexels

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UK pension default funds are pre-selected investment options offered by workplace pension schemes for employees who do not actively choose their own investments.

These funds are designed to suit the average pension saver, balancing risk and potential returns.

Most UK workers are automatically enrolled into a workplace pension under auto-enrolment rules and if they do not make an investment choice, their contributions go into the scheme’s default fund.

Understanding these funds is key to planning for retirement as how they are invested can have long-term implications for pension outcomes.

Default funds are typically managed by professional fund managers and aim to provide steady growth over the long term.

They are often low-cost and diversified, spreading investments across assets like stocks, bonds, and sometimes property to reduce risk.

The goal is to grow your pension pot while protecting it from major market swings, especially as you near retirement age.

How do UK pension default funds work?

When you’re auto enrolled into a workplace pension, your employer and you contribute a percentage of your salary to the scheme typically 3% and 5% of your salary respectively.

If you don’t select specific investments, these contributions are invested in the default fund. Most UK pension default funds use a strategy called ‘lifestyling’ or target-date investing. This approach adjusts the fund’s asset allocation based on your age or expected retirement date.

In your younger years, the fund might invest heavily in equities (stocks) for higher growth potential, as you have time to ride out market fluctuations.

As you approach retirement, the fund gradually shifts towards safer assets like bonds or cash to preserve your savings.

This automatic adjustment reduces the need for you to actively manage your pension investments, making it a hands-off option for many UK savers.

Default funds are regulated to ensure they meet standards for risk, cost, and transparency.

Charges are typically low, often capped at 0.75% per year under Government rules, which can help improve long-term costs.

However, returns are not guaranteed and the fund’s performance depends on market conditions.

Alternative options for pension investing

While UK pension default funds are convenient, they may not suit everyone’s financial goals or risk tolerance.

There are some alternative options for UK pension savers looking to take more control over their investments:

1. Self-select funds

Many workplace pensions allow you to choose from a range of funds offered by the provider. These might include equity funds, bond funds, ethical funds, or sector-specific funds.

This option lets you tailor your investments to your risk appetite or values, such as investing in sustainable companies.

However, you’ll need to research and monitor your choices, as higher-risk funds can lead to greater losses.

2. Self-invested personal pension (SIPP)

A SIPP gives you greater flexibility to invest in a wide range of assets, including individual stocks, exchange-traded funds (ETFs), investment trusts, and even commercial property.

SIPPs are popular among experienced investors but often come with higher fees and require active management. They’re best for those confident in making investment decisions or working with a financial adviser.

It is important however not to forgo the workplace pension entirely however, as you’ll be turning down valuable employer contributions if you opt solely for a SIPP.

3. Financial advice or robo-advisers

If you’re unsure about investment choices, a financial adviser can help create a personalised pension strategy. However advisers tend to require minimum capital levels before being able to help with planning.

Alternatively, robo-advisers offer low-cost, automated investment management based on your goals and risk tolerance.

Both options can help you move beyond the default fund while keeping your pension aligned with your retirement plans.

But be aware of the costs associated with having a third party manage investments for you. It is also important too to ensure the adviser is regulated and has a strong track record of good outcomes for their clients.

Why consider alternatives to default funds?

UK pension default funds are a solid starting point, but they’re designed for the average saver, not individual needs.

If you have a higher risk tolerance, want faster growth, or care about ethical investing, exploring alternatives could better align your pension with your goals.

Reviewing your pension regularly ensures it reflects your financial situation and retirement aspirations.

Disclaimer

This article is produced for general informational purposes only. It should not be construed as investment, legal, tax or other forms of financial advice.

If in any doubt about the themes expressed, consider consulting with a regulated financial professional for your own personal situation.

Past performance is no guarantee of future results. Investments can go down as well as up and you may get back less than you started with.

Investments are speculative and can be affected by volatility. Never invest more than you can afford to lose.

For more information visit www.fca.org.uk/investsmart 

Photo credits: Pexels

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Leading pension providers have announced a new agreement, dubbed the ‘Mansion House Accord’ to channel significant amounts of cash into UK investments.

The agreement could reshape how pension funds are allocated, affecting retirement savings for many.

Below is an overview of the Mansion House Accord and its implications for your pension.

What is the Mansion House Accord?

The Mansion House Accord is a voluntary commitment between the Government and 17 prominent pension providers.

Under this agreement, these providers will allocate 5% of their members’ pension funds to unlisted UK investments – those not traded on public stock exchanges – by 2030.

The Government estimates this could unlock approximately £25 billion for UK-based projects.

Additionally, up to 10% of pension capital will be directed toward infrastructure, property, and private equity investments, which may include both UK and international opportunities.

This shift could mobilise up to £50 billion into assets typically inaccessible through mainstream pension funds.

The accord applies exclusively to defined contribution (DC) pension schemes, which are common in workplace pensions. It does not affect defined benefit (DB) or final salary schemes. While most major providers have joined the accord, some notable firms, like Scottish Widows, have not signed on.

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How does this affect your pension?

The accord will influence the ‘default funds’ offered by pension providers. These are broad, long-term investment options designed to suit most members but not customised for individual needs.

When you join a company pension scheme – usually at the start of a new employment – your pension will likely be automatically invested in the pension provider’s default fund.

If your workplace pension is with a provider signed up to the accord, your savings may be increasingly invested in UK-based projects, such as infrastructure or private equity.

This shift has sparked some concerns. Investments in unlisted assets or UK-focused projects may carry higher risks or deliver lower returns compared to global opportunities.

Historically, pension funds have favoured international investments due to their stronger returns, often bypassing UK assets seen as less attractive.

The Government’s push to prioritise domestic investments is a step back toward ‘financial repression’: a strategy where capital is constrained to local markets, potentially limiting growth due to weaker domestic opportunities or inflationary pressures.

This approach was common in the post-World War II era but largely phased out by the 1970s.

However, there is no mandate forcing pensions into UK investments at this stage. The accord reflects growing Government enthusiasm for keeping capital within the UK, but it remains voluntary for now.

Photo credits: Pexels

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Is your retirement plan on track? How would you even know?

I have only the vaguest idea of what my retirement looks like in pure financial terms – or even if its going to be enough.

I know roughly how much is in my pension pots. And I know how much I (and my employer) contribute each month.

This is a good starting point, but extrapolating what this means when you want to retire is the hardest part.

The good news is we’ve found rather a good tool for it!

This was the subject of this week’s Mouthy Money podcast. We were joined by Kevin Hollister, founder of www.guiide.co.uk to talk about how not to run out of money in retirement.

Kevin has developed Guiide as a nifty tool to help create a plan for your retirement income.

Inputting the variables of what you want (such as retirement age, if you want a tax-free lump sum etc) and what you currently have and contribute – and it will give you an indication of whether you’re on track.

It is modelled on the Pensions and Lifetime Savings Association (PLSA) Retirement Living Standards benchmarks.

Those benchmarks map out three variable retirement lifestyles and the consequent income needs to meet those ambitions. It is very interesting and worth a look.

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Pension shock and horror

For the purposes of the podcast episode with Kevin, I went through the Guiide process. The results made me nervous.

It showed me that with my ambitions as they stood, I would start running out of money after about five years.

The good news is the tool helps you to map what you can do in order to ensure you meet your goals.

Broadly though you’ll need to do one (or more) of the following:

• Lower your expectations
• Take more risk
• Find other assets (such as home equity)
• Contribute more to your pension

With minor tweaks to the first three – I was able to make my plans work, hurrah!

But the process really unlined for me the fact that my plan although it appears to work, is fragile.

A big market fall, a loss of income, stagnation in the housing market – or any other kind of risk – could seriously hamper these plans.

I recommend having a go at the tool – it is quite enlightening.

As we say time and again now – have a plan, make a plan! Don’t stick your head in the sand!

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Pensions Minister Torsten Bell has announced the Government’s plans to legislate for so-called ‘collective defined contribution’ (CDC) pension schemes.

The Government will legislate to create collective pension schemes in the Autumn as it looks to improve pension outcomes for workers.

This will see pension funds from multiple employers pooled together into much larger pots. The Government says by increasing the size of the pension funds it spreads the risk and improves outcomes for members.

Minister for pensions, Torsten Bell, comments: “Success in the world of pensions isn’t just about getting people saving, it’s ensuring their savings work as hard as possible for them.

“Too often at present we are leaving individuals to face significant risks, about how their individual investments perform and how long their retirements last.

“Pooling some of those risks will drive higher incomes for pensioners and greater investments in productive assets across the economy.”

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CDC pensions explained

Currently when an employee joins a company, they are auto enrolled into the company scheme. But the variety of choices, sizes and performance of these pensions are mixed.

Instead, the Government intends to launch so-called ‘collective defined contribution’ or ‘CDC’ schemes. Such schemes are much larger. This makes them more powerful and also more accountable with larger numbers of members reliant on positive outcomes.

Currently the only CDC scheme in the UK is run for Royal Mail employees. It has over 100,000 members and offers them a combination of cash lump sum and income for life in retirement.

The Government will set out new legislation in the Autumn to widen the reform to more employers and schemes.

It plans to offer members of such schemes products on retirement such as annuities as an option for a secure lifetime income instead of managing funds and savings independently once retired.

What collective defined contribution means for pensions

While there is no current indication of whether your pension will be affected by the collective defined contribution pension reforms, there are changes coming in this Parliament.

Workers will potentially see their pension funds moved into larger schemes, which could give them less control over their investments.

The trade-off here is more assurance that their savings are being invested fruitfully for the future – but this is by no means guaranteed.

CDC schemes will have more power to invest in long-term assets such as illiquid investments (such as infrastructure) and more UK-based investments. This is a part of the Government’s wider priority to see more savings invested locally in the UK to boost the economy.

Other types of pensions such as legacy final salary (defined benefit) and private pensions such as self-invested pension pots (SIPPS) will be unaffected by the reform.

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Planning for retirement is a critical step toward financial security, yet many of us overlook simple ways to enhance our pension pots.

With long life expectancies and increasing living costs, building a robust pension is more important than ever.

By increasing contributions, securing higher-rate tax relief, reviewing investment choices, using salary sacrifice, and directing pay rises into your pension, you can significantly improve your retirement savings.

This article looks at five practical tips to boost your pension.

1. Increase your pension contributions

One of the most effective ways to boost your pension is to increase your contributions. The more you pay into your pension, the larger your retirement fund will grow, thanks to compound interest over time.

In the UK, workplace pensions often include minimum contribution rates, typically 5% from employees and 3% from employers under auto enrolment rules. However, these default contribution levels may not suffice for a comfortable retirement.

Consider incrementally raising your contributions, even by 1% or 2% annually. For example, if you earn £30,000 and increase your contribution from 5% to 7%, you could add thousands to your pension over a career.

Many employers match additional contributions up to a certain level, so check your scheme’s rules. Use online pension calculators to estimate how small increases can impact your future savings.

Starting early maximises growth, but even mid-career adjustments can make a significant difference.

2. Review your pension investments

Where your pension is invested plays a crucial role in its growth. Many UK workers remain in their workplace pension’s default fund, which may not always deliver optimal returns.

Default funds are often designed for low risk, which can mean lower growth, especially for younger savers with decades until retirement. Underperforming funds can cost you tens of thousands over time – even if you can’t plainly see it.

Request a pension statement to see your fund’s performance and compare it to similar funds using tools like Morningstar or Trustnet.

Look at the asset allocation. Is it heavily weighted in bonds rather than equities? For those far from retirement, a higher equity allocation may offer better long-term growth.

Consider switching to a fund with a stronger track record or a different risk profile but check for exit fees. If unsure, consult a financial adviser to align your investments with your retirement goals and risk tolerance.

3. Use salary sacrifice schemes

Salary sacrifice is a tax-efficient way of boosting your pension.

Instead of receiving part of your salary, you ask your employer to pay it directly into your pension. This reduces your taxable income, saving on income tax and National Insurance contributions (NICs).

For example, if you sacrifice £1,000 of your salary, both you and your employer avoid NICs, and the full amount goes into your pension, often with employer contributions added.

This strategy is particularly beneficial for middle and high earners. However, it may affect benefits like statutory maternity pay or mortgage applications, as it lowers your official salary.

Salary sacrifice can significantly enhance your pension while reducing your tax bill. This is particularly salient for higher earners with young children, who face a significant tax and benefit cliff-edge when they go from earning £99,999 to £100,000.

Check with your employer if they offer salary sacrifice and calculate the savings using a pension calculator. Always ensure the scheme complies with HMRC rules to avoid unexpected tax issues.

More from Edmund Greaves

4. Direct pay rises into your pension

When you receive a pay rise, it’s tempting to spend the extra income. However, allocating some or all of it to your pension can go a long way to boosting your pension without impacting your current lifestyle.

For example, if your salary increases by £2,000 annually and you direct half to your pension, you’ll barely notice the difference in take-home pay but will see substantial long-term gains.

This approach works because it prevents lifestyle creep, where spending rises with income. Set up an automatic increase in your pension contributions whenever your salary rises.

Many workplace pensions allow you to adjust contributions easily through payroll. If your employer matches contributions, you could double the impact.

This habit ensures your pension grows in line with your career, keeping your retirement plans on track.

5. Secure higher-rate tax relief

If you’re a higher-rate or additional-rate taxpayer, ensuring you claim higher-rate tax relief is a must.

In the UK, pension contributions receive tax relief at your marginal rate. Basic-rate taxpayers (20%) get relief automatically, but higher-rate (40%) and additional-rate (45%) taxpayers must claim extra relief through a self-assessment tax return or by contacting HMRC.

For instance, a £10,000 contribution costs a higher-rate taxpayer only £6,000 after tax relief, as the government tops up the difference. Failing to claim this relief means missing out on free money for your pension.

Check your tax code and recent payslips to confirm your tax band. If you’ve overpaid tax or haven’t claimed relief, contact HMRC promptly.

Additional considerations for pension planning

Beyond these five tips, regularly review your pension to ensure it aligns with your goals.

Consolidate old pensions from previous jobs to simplify tracking and reduce fees but check for valuable benefits like guaranteed annuity rates before transferring.

Stay informed about pension rules, such as the annual allowance (£60,000 for most in 2025/26).

If you’re self-employed, set up a personal pension and contribute consistently to benefit from tax relief.

Inflation and life changes also affect your pension needs. Use forecasting tools to estimate your retirement income and adjust contributions accordingly.

If you’re nearing retirement, gradually shift investments to lower-risk options to protect your pot.

Seeking professional financial advice can provide clarity, especially for complex situations like defined benefit pensions or tax planning.

Concluding thoughts on boosting your pension

Boosting your pension doesn’t require drastic changes; small, consistent actions can yield significant results.

By increasing contributions, claiming higher-rate tax relief, reviewing investments, using salary sacrifice, and directing pay rises into your pension, you can build a stronger financial future.

Start today by assessing your pension statement and exploring one or two of these strategies. With compound growth and tax advantages, your efforts now will pave the way for a secure and comfortable retirement in the UK.

This article is produced for general informational purposes only. It should not be construed as investment, legal, tax or other forms of financial advice.

If in any doubt about the themes expressed, consider consulting with a regulated financial professional for your own personal situation.

Past performance is no guarantee of future results. Investments can go down as well as up and you may get back less than you started with.

Investments are speculative and can be affected by volatility. Never invest more than you can afford to lose.

For more information visit www.fca.org.uk/investsmart

The post Five practical tips for boosting your pension appeared first on Mouthy Money.

Q Is it too late to start a pension? I’m turning 40 next year and I’m worried I should have started earlier. 

A It’s never too late to start saving into a pension and turning 40 is a great time to focus on your retirement planning. With many working years ahead of you, you still have ample opportunity to build up a significant pension pot, particularly if you take proactive steps now. 

You might already have a pension you don’t know about too. If you’re currently employed and earning over £10,000 a year, it’s likely you have a workplace pension with your current employer and possibly others from previous jobs, thanks to the introduction of Auto-Enrolment in 2012.  

To make sure you’re not leaving any hard-earned savings behind, consider using the government’s free Pension Tracing Service or contacting your former employers directly.  

Once you have tracked down any old pensions, you might want to consider consolidating them into one pot. 

If you’re earning below the auto-enrolment threshold or are self-employed, you can still save into a pension. A private pension, such as a personal pension or self-invested personal pension, are easy to set up and typically offer flexibility in the amount you have to contribute as well as investment choices to match your risk tolerance and retirement goals. 

Mouthy Money Your Questions Answered

Saving into a pension now ensures you have a source of income when you retire, rather than having to continue working in retirement or relying solely on other investments.  

While investments like property or ISAs can be valuable in retirement, it’s important not to rely solely on one type of asset. Diversifying your savings across different vehicles, including a pension, ensures you have multiple sources of income to draw from in retirement. This approach can help protect you against market fluctuations and ensure a more stable financial future. 

One major benefit of contributing to a private pension is the tax relief offered by the government. For example, if you’re a basic rate taxpayer, every £100 you contribute is effectively increased to £125 due to HMRC’s 25% top-up. Higher-rate taxpayers can claim even more, making pension contributions a very tax-efficient way to save for retirement. 

The key to building a substantial pension is consistency. Regular contributions, even if modest, can grow significantly over time, especially when combined with tax relief and potential employer contributions. Starting at 40 means you have time on your side to benefit from compound growth, so the earlier you start, the better prepared you’ll be for a comfortable retirement. 

Becky O’Connor is the Director of Public Affairs at leading online pension provider PensionBee. She is a personal finance and investment expert and award-winning journalist with two decades of experience in journalism and communications. Becky is the Telegraph’s ‘Pensions Doctor’ and is also a columnist for the i paper. Prior to joining PensionBee, Becky was Head of Pensions at Interactive Investor, and previously acted as a spokesperson for Royal London, the mutual insurer. Becky is also the co-founder of the ethical personal finance website, Good With Money; the author of a book on sustainable investment, The ESG Investing Handbook, Chair of the Ethical Advisory Committee for Castlefield Investment Management and a fellow of the Royal Society of Arts. 

Photo credits: Pexels

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Pensions – let’s talk about it fellow millennials and Gen Z’s! It is understandable that the topic of pensions may not fill one with excitement, but it is certainly one of the most crucial considerations when planning your financial future.  

What is the pension landscape in the UK? 

The average private pension pot size across the UK sits around £20,077 according to pensions saving app Pension Bee¹.

These numbers will be skewed according to one’s region, age, and gender, but all things considered an average pension pot of around £20k would provide an income a little over £1,000 per year².  

The state pension, which is currently accessible at 66, provides a weekly income of £221.20, or £11,502 per year^3,4.  

It is impossible to predict the future or try to imagine the state of your finances in your 50s and 60s but a good place to start is to ask yourself: 

“Could I survive on X income per year?” or better still, 

“Could I live the life I would desire in my latter years on X income per year?” 

If the answer is no, then there’s no time like the present to make a solid plan, and here are a few reasons why: 

1. Allow COMPOUNDING to take effect 

The earlier you start contributing towards a pension, the less you will have to contribute in the long run.

The power of compounding means years or decades of interest earned also earn interest leading to exponential growth.

Below is a simple illustration of the compounding effect: 

Person A 

• Starts contributing to their pension at age 40 

• They contribute £500/month, with an assumed annual rate of return of 6% 

• Their total contributions = £105,000, and their total interested earned = £251,177 

• Their total pension pot by age 60 = £231,020 

Person B 

• Starts contributing to their pension at age 25 

• They contribute £250/month, with an assumed annual rate of return of 6% 

• Their total contributions = £120,000, and their total interested earned = £106,783 

• Their total pension pot by age 60 = £356,177 

2. Build good FINANCIAL HABITS earlier 

It is exceedingly tempting to lead a YOLO life when you’re young as those latter years seem so far away! But if you can start to build good financial habits when you start earning, it is much easier to maintain throughout the years.  

By setting up automatic pension contributions as soon as you start working, you’ll be surprised how you work with the remaining pay after your pension contributions have been made.

Just remember, everything healthy in life is about striking the right balance! Fun doesn’t have to be sacrificed completely for the sake of your future finances, nor does your financial future need to be sacrificed for the fun of today.  

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3. There are no STATE PENSION guarantees 

As much as we can hope that the state pension will still be in existence by the time we reach our late 60s, we need to be mindful that there is no guarantee.

Bearing that in mind, your retirement finances could potentially be based upon what you accumulate in your private pension pot alone. T

herefore, make a retirement plan and run the numbers with and without the state pension in your calculations so you have a best and worst case scenario to consider. 

¹ https://www.pensionbee.com/uk/pension-landscape 

² https://www.legalandgeneral.com/retirement/pension-drawdown/ 

³ https://www.gov.uk/new-state-pension 

⁴ The state pension is based on one’s eligibility including national insurance contributions and age. 

Photo credits: Pexels

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Q I’m self employed so don’t have a pension. Is there any point in me setting one up given that I don’t have an employer to make contributions to it? 

A Absolutely! Unlike employees who are automatically enrolled in workplace pension schemes, self-employed workers have to take on a greater responsibility for their retirement savings.

This can be difficult as there is no one to choose a pension scheme for you and your income may fluctuate, but there are many advantages to having a pension.  

Setting up a pension ensures you have a dedicated source of income when you retire, instead of having to rely solely on your business or other investments.

While most people are eligible for some state pension support, on its own, it’s unlikely to provide you with enough money to maintain the standard of living you might like. So, it’s important to plan ahead to provide yourself with the rest of the retirement income you’ll need in later life. 

Many pension providers offer dedicated self-employed pension products which allow for flexibility in terms of minimum contributions and how regularly you have to contribute. At PensionBee, for example, you can set up a self-employed pension, by transferring your old pensions into one simple online plan or by creating a new pension if you’ve never saved towards retirement before.  

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While it may seem like an added expense now, consider it a long-term investment in your future. The earlier you start saving, the more time your money has to grow through compound interest and even small, regular contributions can make a big difference when it comes to retirement.  

It’s also worth noting that self-employed pensions often come with tax advantages, as pension contributions are usually classed as a business expense if you’re a director of a limited company.

This means you not only receive tax relief on personal contributions you make, but you could also save on corporation tax on payments made directly from your business.

In addition, pension contributions come from your pre-tax income. This means that by making pension contributions, you could see a reduction in your National Insurance contributions, allowing you to take home more of the money you’ve earned.  

Becky O’Connor is the Director of Public Affairs at leading online pension provider PensionBee. She is a personal finance and investment expert and award-winning journalist with two decades of experience in journalism and communications. Becky is the Telegraph’s ‘Pensions Doctor’ and is also a columnist for the i paper. Prior to joining PensionBee, Becky was Head of Pensions at Interactive Investor, and previously acted as a spokesperson for Royal London, the mutual insurer. Becky is also the co-founder of the ethical personal finance website, Good With Money; the author of a book on sustainable investment, The ESG Investing Handbook, Chair of the Ethical Advisory Committee for Castlefield Investment Management and a fellow of the Royal Society of Arts.  

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