Give your pension a head start

When to start saving for a pension

Increasing life expectancy means that we are living and working for longer. We will need support when we stop working, and the state pension is unlikely to provide enough income for most of us. So we need to save some money for our old age, most likely in a pension, but when is the right time to start saving?

The basic rule is that the earlier you start saving the better as the effects of compound growth on your savings mean that money will grow in value if it is saved for longer. It is possible to save for retirement from birth with a Junior SIPP but saving for retirement this early on is not always practical and you should remember that the money will be tied up until your child reaches 57 at least.

But don’t worry, it’s never too late to get into the saving habit. And with generous tax reliefs for pension saving, it makes sense to start as soon as you can. Just remember that the value of investments can change, and you could lose money as well as make it. And keep in mind that how you’re taxed depends on your circumstances, and pension and tax rules can change.

Typically employers will offer a pension scheme that matches your contributions up to a certain limit and it’s usually worth joining this, as otherwise you are effectively turning down extra pay. Employers can also contribute to an AJ Bell Youinvest SIPP. Find out more about employer contributions.

Work for yourself? You won’t usually be auto-enrolled into a company pension scheme – but you can still save for your retirement with a SIPP, and earn tax relief. So the sooner you start, the more you could save. And if you own your business, you could also consider paying part of your salary directly into your pension as an employer contribution, which reduces your business’s liability for corporation tax, and your personal liability for income tax. Read more about pensions for the self-employed.

ISAs can also play a part in your saving strategy and can be used alongside a pension to save for retirement. A Lifetime ISA is aimed at younger investors who are looking to save for retirement at 60 or for a first home, whilst a Stocks and shares ISA can be opened by anyone over the age of 18.

How much money should I save into a pension?

This all depends on what you can afford, what your target is at retirement and what time period you have to save over. The earlier you start the less you will have to save as investment returns will make your pot grow.

Case study: Millie Wilkins is 50 and wants to retire at 60


She is working and has a pension with her employer that will be worth about £300,000 when she retires. She wants to increase that to £400,000 by the time she retires, to generate an estimated income of £20,000* in addition to her state pension.

At age 50 she will need to save £6,700** a year into a personal pension or SIPP for 10 years which will equal total payments of £67,000. This will grow in value to £100,000 boosted by the Government tax relief and investment growth.

If Millie had started paying into her pension earlier her annual saving would be far lower as there would be more time for investment growth**. So at:

  • 40 she would only have to save £2,700 per annum (total £54,000)
  • 30 she would only have to save £1,430 per annum (total £42,900)
  • 20 she would only have to save £850 per annum (total £34,000)

*Assumes an annuity rate of 5%
**Assumes lump sum contributions at the beginning of each tax year, 20% tax relief and investment growth of 4%

To find out more about how to build up a personal pension read our saving for retirement pages.

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A guide to SIPPs

Our guide explains how they can help you achieve retirement goals