Resist opting out early<\/p>\n
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 \u00a310,000 a year, \u00a3192 a week or \u00a3822 a month, in the 2025\/26 tax year.<\/p>\n
The total minimum contribution to a workplace scheme is 8%. This doesn\u2019t 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.<\/p>\n
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.<\/p>\n
\u201cThe earlier you start, the better,\u201d says Mark Smith, a spokesperson for Pension Attention, an industry-led campaign. If you opt out, you\u2019ll be\u00a0automatically enrolled again three years later, but Smith says that is a long time to be missing out on potential stock market growth. \u201cSet a reminder for a year\u2019s time to see if you can manage\u00a0it then,\u201d he says. \u201cBetter still, say no to opting out to begin with \u2013 see if you can manage financially with that contribution. If you really are struggling, you can think again.\u201d<\/p>\n
Balance money priorities<\/p>\n
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.<\/p>\n
\u201cFor many younger people, rising living costs and the pressure\u00a0to\u00a0build a deposit mean tough trade-offs, including cutting back on pension saving,\u201d says Katharine Photiou, the director of workplace savings at L&G Retail. \u201cWhile understandable, these decisions can have a lasting\u00a0negative impact on retirement outcomes.\u201d<\/p>\n
Neglecting your pension while saving the deposit for your first home is understandable. However, they may have a negative impact. Photograph: Jack Sullivan\/Alamy<\/p>\n
If you are saving for a deposit, a lifetime individual savings account (Lisa) could be useful. Lisas let you put away up to \u00a34,000 a year that you can use later for either a property purchase or to help fund your retirement.<\/p>\n
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\u2019s value if you withdraw the money before you turn 60 for any reason other than to buy a home.<\/p>\n
Pay more when you can<\/p>\n
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. \u201cCheck your employer\u2019s policy. If you put in another 1%, they might match it \u2013 it\u2019s a tax efficient way for them to pay you more,\u201d says Smith. \u201cBecause 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.\u201d<\/p>\n
Hargreaves Lansdown\u2019s pension calculator shows that a 22-year-old earning \u00a325,000 a year contributing at the auto-enrolment minimum, 5% from the employee, 3% from the employer, could expect to have \u00a3155,000 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 \u00a3194,000.<\/p>\n
Plan around parental leave<\/p>\n
\u201cIt\u2019s important to keep contributing to your pension if you can afford to on maternity leave,\u201d says Helen Morrissey, the head of retirement analysis at Hargreaves Lansdown. \u201cThe 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 \u2013 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.\u201d<\/p>\n
Don\u2019t neglect contributions to your state pension, including any benefits during periods of not working. Photograph: David Burton\/Alamy<\/p>\n
If you don\u2019t 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.<\/p>\n
Monitor if unemployed<\/p>\n
If you are out of work, your contributions to a workplace scheme will stop, but your pension\u00a0will remain invested. It\u2019s wise to pay attention to your state pension, though.<\/p>\n
\u201cMake sure you claim everything you are entitled to when out of work. Many benefits \u2013 such as jobseeker\u2019s allowance \u2013 come with an automatic national insurance credit that goes towards building up the qualifying years you need for your state pension,\u201d says Morrissey. Check your eligibility for NI credits if you stop work because of caring commitments or are on long-term sick leave, too.<\/p>\n
Then, Photiou says: \u201cWhen you\u2019re earning again, restarting contributions quickly can help you stay on track.\u201d<\/p>\n
Do it yourself<\/p>\n
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 \u00a320.<\/p>\n
While \u00a320 a month is better than nothing, it is not enough to build up a substantial retirement fund. Paying \u00a320 a month into a stakeholder pension from the age of 22 to the age of 68 could build you about \u00a328,000, according to pension provider Nest\u2019s calculator. Paying in \u00a3100 a month over that time would mean a pot of \u00a3139,000.<\/p>\n
The money will be locked in until retirement \u2013 if you want to retain access to your money before that, a lifetime Isa might be suitable here, too.<\/p>\n
Keep track of pots<\/p>\n
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.<\/p>\n
At the end of your career you may have worked for many different firms, with just as many pension pots still attached. Track them down. Photograph: Rosemary Roberts\/Alamy<\/p>\n
\u201cWhen you change jobs, you can either leave your pension where it is, transfer it to your employer\u2019s scheme or into a personal pension,\u201d says Morrissey. \u201cYou may choose to consolidate your pensions to make it easier to keep track of them, but before you do, make sure that you aren\u2019t potentially incurring any expensive exit fees or losing valuable benefits such as guaranteed annuity rates.\u201d<\/p>\n
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.<\/p>\n
The government\u2019s MoneyHelper website has general guidance on transferring and consolidating pensions, but for personalised guidance it\u2019s worth paying for independent financial advice \u2013 you can find an adviser on the Unbiased website.<\/p>\n