Refuse to withdraw early
All employers must automatically enroll their employees into their workplace pension scheme if they meet the eligibility criteria. Employees must be UK residents, between 22 and state pension age, and earn at least £10,000 per year, £192 per week or £822 per month in the 2025/26 tax year.
The minimum total contribution to a workplace plan is 8%. Not all of this will come from your salary, as your employer will cover a significant portion of it and your contributions will increase through tax relief.
Your employer should automatically take you into the scheme, but you can opt out, which may be tempting if you are on a low wage. But that means rejecting the free money and tax breaks offered by employers. This also means missing out on growth for those funds.
“The sooner you start, the better,” says Mark Smith, spokesperson for industry-led campaign Pension Attention. If you opt out, you’ll automatically re-enroll after three years, but Smith says that’s a long time to miss out on potential stock market growth. “Set a reminder to see if you can manage it in a year,” he says. “Better yet, refuse to withdraw in the first place. Make sure you can manage financially with that contribution. If you’re really struggling, think again.”
Balancing Money Priorities
Early in your career, planning for retirement may be a higher priority. For example, if you want to save to buy a home, you’ll have to make some difficult decisions. Research from pension provider L&G recently found that one in seven homeowners and prospective homeowners have paused, reduced or paid nothing at all to their pension to prioritize buying a property.
“For many young people, rising living costs and pressures to build savings mean tough trade-offs, including reducing pension savings,” says Katharine Photiou, 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 deposit purposes, a Lifetime Personal Savings Account (Lisa) may be useful. Lisas allows you to save up to £4,000 a year which you can later use to buy property or fund your retirement.
You must be under 40 to start a business, and the government will pay you an additional 25% bonus on your balance each year until you are 50. There is no tax break on any money brought in, but any money taken out is tax-free. You can access the funds before retirement, but if you withdraw the money before age 60 for reasons other than buying a home, you will be charged 25% of the Lisa’s value.
Pay more if you can
If your new job gives you a pay rise, consider increasing your pension contributions before you get used to having extra money in your pocket. “Check your employer’s policy. If you put in an extra 1%, your employer may match it. It’s a tax-efficient way for employers to pay more,” says Smith. “Because of how tax relief and compounding are calculated, 1% costs much less than 1% of your actual salary, but can add thousands of dollars to your final amount.”
According to Hargreaves Lansdown’s pension calculator, a 22-year-old worker earning £25,000 a year could expect to save £155,000 by age 68 if she contributes the minimum auto-enrolment amount of 5% from employees and 3% from employers. Adding percentage points, if they pay 6% and their employer pays 4%, they would increase their funds to £194,000.
Plan for parental leave
“If you can afford to take maternity leave, it’s important to continue to contribute to your pension,” says Helen Morrissey, head of retirement analytics at Hargreaves Lansdown. “What you paid is [as the employee] Contributions are based on your wages, so they may be reduced to match your maternity pay, but your employer will continue to contribute based on your pre-maternity leave salary for the first 39 weeks. Some may even allow you to pay longer. If you are on a salary sacrifice scheme, your total contribution will not change as this is classed as an employer contribution.”
If you are not entitled to maternity pay, your employer must pay your pension for the first 26 weeks, known as standard maternity leave. After that it depends on the contract.
Monitor unemployment
If you lose your job, your contributions to your workplace plan will stop, but your pension will still be invested. However, it is wise to pay attention to your state pension.
“You should claim everything you are entitled to when you retire. Many benefits, such as Jobseeker’s Allowance, come with automatic national insurance credits, which are used to build up the qualifying years you need for your state pension,” says Morrissey. If you’re off work or on long-term sick leave due to care commitments, check if you’re eligible for NI credit.
Then, Photiou says, “When you start earning again, quickly restarting your giving can help you continue to earn money.”
Try it yourself
One of the simplest solutions for the self-employed, whether temporarily or long-term, is a stakeholder pension, a retirement plan with capped annual claims and a minimum monthly contribution of £20.
£20 a month is better than nothing, but it’s not enough to save for a significant retirement. Paying £20 a month into a stakeholder pension from age 22 to 68 could earn you around £28,000, according to a calculator from pension provider Nest. If you pay £100 a month over that period, you’ll have £139,000.
That money will be locked away until you retire. If you want to maintain access to your money before then, a Lifetime Isa could be right for you here too.
track your pot
When you retire, your list of previous employers can run into double figures, potentially leaving you with a trail of large pension pots.
“When you change jobs, you can keep your pension in place or transfer it to your employer’s scheme or private pension,” says Morrissey. “You can also consolidate your pensions to make it easier to track them, but before doing so make sure you don’t incur potentially expensive withdrawal fees or lose valuable benefits such as guaranteed pension rates.”
If you have a defined benefit (or final salary) pension, and your payouts are based on how much you earn and how much you are guaranteed, it makes little sense to move it, she says.
The government’s MoneyHelper website has general guidance on transferring and consolidating pensions, but if you want personalized guidance, you may want to pay for independent financial advice. You can find an advisor on the Unbiased website.
If you’ve forgotten a pension you’ve paid in the past, use the government’s pension tracking service to find it. You will need to give us the name of your company or pension provider.
Stay Invested
From age 55 (age 57 from April 2028), you can withdraw up to 25% of your pension tax-free. But, says Smith, “Just because you can doesn’t mean you should. There are significant tax implications to keep in mind.”
Meanwhile, if you start taking withdrawals from your pension, rather than taking a tax-free lump sum, the amount you can contribute to your pension will be reduced to £10,000 for the tax year, subject to the annual allowance for cash purchases instead of the standard annual deduction of £60,000.
You also miss out on future growth opportunities for the money you withdraw. It is always advisable to get professional advice before receiving your pension. Although it can be expensive, it is often worth it to avoid mistakes. Free guidance is provided to those aged 50 and over through the fair, government-backed Pension Wise service.