Resist opting out early
All employers must automatically enrol their employees in a workplace pension scheme if they meet the eligibility criteria: the employee must be a UK resident, aged between 22 and state pension age, and earning more than £10,000 a year, £192 a week or £822 a month, in the 2025/26 tax year.
The total minimum contribution to a workplace scheme is 8%. This doesn’t all come out of your pay, as your employer will stump up a chunk of that and your contribution will be boosted by tax relief.
While your employer must automatically put you into the scheme, you can opt out, and this may be tempting if you are on a low wage. However, that means turning down free money from your employer and through tax relief. It also means missing out on the growth of that money.
“The earlier you start, the better,” says Mark Smith, a spokesperson for Pension Attention, an industry-led campaign. If you opt out, you’ll be automatically enrolled again three years later, but Smith says that is a long time to be missing out on potential stock market growth. “Set a reminder for a year’s time to see if you can manage it then,” he says. “Better still, say no to opting out to begin with – see if you can manage financially with that contribution. If you really are struggling, you can think again.”
Balance money priorities
Early in your career you may have priorities that come ahead of planning for retirement. If you want to save up to buy a home, for example, there are difficult decisions to make. Research by pension provider L&G found one in seven recent and prospective homeowners have paused, reduced or never paid into a pension, to prioritise buying a property.
“For many younger people, rising living costs and the pressure to build a deposit mean tough trade-offs, including cutting back on pension saving,” says Katharine Photiou, the director of workplace savings at L&G Retail. “While understandable, these decisions can have a lasting negative impact on retirement outcomes.”
If you are saving for a deposit, a lifetime individual savings account (Lisa) could be useful. Lisas let you put away up to £4,000 a year that you can use later for either a property purchase or to help fund your retirement.
You must be under 40 to open one and until you turn 50 the government will pay a 25% top-up bonus on your balance each year. There is no tax relief on money paid in, but all the money taken out is tax-free. While you can access the funds before you retire, you will be charged 25% of the Lisa’s value if you withdraw the money before you turn 60 for any reason other than to buy a home.
Pay more when you can
If a new job brings a pay rise, consider increasing your pension contributions before you get used to having the extra money in your pocket. “Check your employer’s policy. If you put in another 1%, they might match it – it’s a tax efficient way for them to pay you more,” says Smith. “Because of the way tax relief and compounding work, that 1% costs you significantly less than 1% of your take-home pay but could add thousands to your final pot.”
Hargreaves Lansdown’s pension calculator shows that a 22-year-old earning £25,000 a year contributing at the auto-enrolment minimum, 5% from the employee, 3% from the employer, could expect to have £155,000 saved by the time they were 68. By adding a percentage point, so they pay 6% and their employer pays 4%, they would increase their fund to £194,000.
Plan around parental leave
“It’s important to keep contributing to your pension if you can afford to on maternity leave,” says Helen Morrissey, the head of retirement analysis at Hargreaves Lansdown. “The amount that you [as the employee] will contribute is based on your wages, so may well come down in line with your maternity pay, but your employer will continue to contribute based on your pay before maternity leave for the first 39 weeks – some may pay for longer. If you are in a salary sacrifice scheme, then your total contribution remains unchanged, as it is classed as an employer contribution.”
If you don’t qualify for maternity pay, your employer must contribute to your pension for the first 26 weeks, the period known as ordinary maternity leave; beyond that point, it depends on your contract.
Monitor if unemployed
If you are out of work, your contributions to a workplace scheme will stop, but your pension will remain invested. It’s wise to pay attention to your state pension, though.
“Make sure you claim everything you are entitled to when out of work. Many benefits – such as jobseeker’s allowance – come with an automatic national insurance credit that goes towards building up the qualifying years you need for your state pension,” says Morrissey. Check your eligibility for NI credits if you stop work because of caring commitments or are on long-term sick leave, too.
Then, Photiou says: “When you’re earning again, restarting contributions quickly can help you stay on track.”
Do it yourself
One of the most straightforward solutions for people who are self-employed, whether temporarily or long-term, is a stakeholder pension, a retirement plan with capped annual charges and a minimum monthly contribution of £20.
While £20 a month is better than nothing, it is not enough to build up a substantial retirement fund. Paying £20 a month into a stakeholder pension from the age of 22 to the age of 68 could build you about £28,000, according to pension provider Nest’s calculator. Paying in £100 a month over that time would mean a pot of £139,000.
The money will be locked in until retirement – if you want to retain access to your money before that, a lifetime Isa might be suitable here, too.
Keep track of pots
The list of your former employers could reach double figures by the time you retire, potentially leaving a trail of just as many pension pots.
“When you change jobs, you can either leave your pension where it is, transfer it to your employer’s scheme or into a personal pension,” says Morrissey. “You may choose to consolidate your pensions to make it easier to keep track of them, but before you do, make sure that you aren’t potentially incurring any expensive exit fees or losing valuable benefits such as guaranteed annuity rates.”
If you have a defined benefit (or final salary) pension, where your payments are based on what you earned and guaranteed, it rarely makes sense to move it, she says.
The government’s MoneyHelper website has general guidance on transferring and consolidating pensions, but for personalised guidance it’s worth paying for independent financial advice – you can find an adviser on the Unbiased website.
If you have lost track of pension pots you have paid into in the past, use the government’s Pension Tracing Service to find them. You will need to give them the name of the company or pension provider.
Stay invested
From the age of 55 (57 after April 2028), you can withdraw up to 25% of your pension tax-free. But, Smith says: “Just because you can, doesn’t mean you should. There are significant tax implications to bear in mind.”
Meanwhile, once you start drawing from your pension, as opposed to just taking this tax-free lump sum, the amount you can contribute to pensions is reduced to £10,000 a tax year under the money purchase annual allowance, instead of the standard allowance of £60,000 a year.
You will also miss out on any future growth for the sum you withdraw. It is always advisable to take professional advice before drawing your pension: although this can be expensive, it often pays for itself in avoiding mistakes. Free guidance is available for over-50s through the government-backed and impartial Pension Wise service.