Starting a pension as early as possible
Generally it’s a good idea to start a pension as soon as you can, even if you can only pay a small amount into your pension to begin with. Starting a pension early can make a big difference to how much your pension pot is worth on retirement.
For example, if at age 30 you start saving 15% of a £30,000 salary, your pension pot may be worth around £196,100 on retirement. If you don’t start a pension until you’re 45, the same level of contributions may build a pension pot worth around £109,500 by retirement.*
Bear in mind that if you’re a UK-based employee aged 22 or over, it’s likely that your employer will automatically enrol you into a workplace pension scheme. Money will be paid directly into your pension before your salary is paid, and your employer will contribute to your pension too. If you’re not a member of a workplace scheme, you can choose to set up a personal pension instead.
Why it’s a good idea to start a pension
Compared to other savings products, pensions come with some big benefits, for example:
- The government contributes to your pension in the form of generous tax relief, adding £2 for every £8 you put into your pension if you’re a basic rate taxpayer.
- Your employer may contribute to your pension too, helping your pension pot to grow.
- Pensions are treated favourably for inheritance tax purposes, so if you die before 75 your pension is passed on without tax deductions.
- Good pension funds are diversified, which means the money is invested in a carefully-selected mixture of assets, to help manage risk.
- New pension rules mean you can choose to do several different things with your pension when you reach retirement, including taking up to 25% of your money as a tax-free lump sum.
Most pensions will allow you to stop and start contributions, so even if you start a pension now, you can stop paying into it in the future if your situation changes.
* These figures are intended for illustration only. As with all investments, capital is at risk and the value can go down as well as up. We have assumed a retirement age of 65, that your plan earns a 5% return before the effects of inflation and have taken inflation of 2.5% into account.
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Last edited: 30-09-2018