01 December 2023

So do you fancy getting free money from your employer on top of your salary, every single month? That’s what your workplace pension could do for you. And you’ll also get the warm glow of knowing that you’re investing in your long-term future.

In this article, we’ll explain:

  • All the pension basics
  • How much you should consider paying into your pension
  • How you can help your pension grow
  • What happens when you change jobs
  • What to do if you’ve got several pensions
  • When you can access all that money

Pension basics

The first thing most people ask is “Why do I even need a pension?” That’s a good question, especially in our current financially challenging times. And there are several good answers to it:

  • Saving into a workplace pension gets you additional contributions from your employer. They’ll top up any payments you make into it. And you won't pay any tax on those contributions, making your pension a very tax-efficient way to invest in yourself and your future.
  • If you don’t have one, you’ll have to rely on the State Pension once you reach retirement age. It’s currently at most £10,600 a year. That won’t support most people’s ideal retirement lifestyles – find out how much yours could cost at Retirement Living Standards.
  • Pensions are very easy to start paying into.
    • Your employer will set up your workplace pension for you – that’s called auto-enrolment. They’ll pay your money directly into it.
    • If you don’t have a workplace pension (for example, if you’re self-employed), you can opt for a personal pension. They’re quick and easy to set up.
  • Pensions are a very tax-efficient way of saving. You don’t actually pay tax on any money that goes into them. And if you have a personal pension, the government adds 25% to anything you pay in.
  • Like any investment though, your pension's value will go up and down. So you might get back less than you put in.

How much should I consider paying into my pension?

Some people say you should pay in half your age. So, for example, if you’re 30, you might want to contribute 15% of your salary to your pension (including any money from your employer). The least you can pay into a workplace pension is 8% of your salary – you pay 5% and your employer 3%.

If you want to take a more planned approach, you should pay in as much as you:

  • Can afford to pay right now
  • Need to support your ideal later lifestyle

Our How much should I pay into my pension article shows you how to work that out.

How can I help my pension grow?

Starting early is the best way to grow your pension savings. That:

  • smooths out any of the market ups and downs that always come with investing
  • gives you and your employer more time to pay more money into it
  • helps you take advantage of the magic of compounding

If you get a bonus through your net pay, you can pay some or all of it into your pension through salary sacrifice – and you won’t pay any tax on it. It’s also worth thinking about keeping up your payments if you’re on maternity leave, to make sure you also keep getting those lovely free employer contributions.

Once your money’s in your pension, you can choose how it’s invested. Some investments offer higher levels of risk but balance that out with possibly higher growth. They might be a good choice if you’re not planning to draw on your pension pot in the next few years.

And finally, make sure that you don’t have more than you need sitting around in cash. At the moment we’re seeing high inflation, which can eat away at its value. You can check out our How to protect your savings from inflation article for more inflation-proofing ideas.

What happens to my pension when I change jobs?

When you change jobs, your new employer will auto-enrol you into their pension scheme. That’s the one you and they will pay into while you’re in your new job. Your old pension will still belong to you. You can either leave your money invested in it or transfer it across to your new pension.

What should I do if I have lots of pension pots?

If you do end up with lots of different pension pots, transferring them all into one pension could be a good idea. That’s called consolidation. It can make managing your pensions much easier, although it’s not right for everyone or for every type of pension.

There’s no time limit on transferring pensions – you can consolidate them whenever you want to. And it’s easy to find any pension that you’ve lost track of. Our article on how to track down your old pensions shows you how to do that and explains consolidation in more detail.

When can I access my money?

You can access the money in your pension pot once you turn 55, rising to 57 on or after 6th April 2028. That means you don’t have to wait until you start getting your State Pension in your late 60s to retire.

Though of course you might also choose to keep working through your 50s and beyond so you can invest more money and give it more time to grow. And you don’t have to stop working to access your pension pot – you just need to be old enough.  

What's next

We have lots of info that can help you learn about pensions –

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