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  • Writer's pictureMoney Mentor

Pension Savings - It Pays To Start Young

Updated: May 15, 2022

The attraction of saving into a pension has less appeal for younger people but as people grow older, retirement planning becomes a larger concern.

Employees today benefit from auto-enrolment into workplace pensions but despite this, 24% of those surveyed aged under 35 claim to have no pension savings at all.

The simple fact is that the earlier people start to save for retirement, the greater the potential for growth.

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The Power Of Compound Growth

The power of compound growth means that starting to save for retirement as early as possible can be a significant benefit. For example, Chloe starts pension savings at the age of 20, and invests just £50 a month. Josh waits until he is 40, but invests £100 a month.

By age 60, both Chloe & Josh have invested the same amount, but because of compound interest over time, assuming a growth rate of 4% each year, Chloe has a pension savings fund of nearly double that of Josh's. This example does not allow for the addition of pensions tax relief.

It is never too late to start pension savings and as pension contributions receive basic rate tax relief they get an immediate boost, so for every £100 you put towards your retirement savings the government will add an additional £25 (20%) tax relief, and if you are a higher rate or additional rate taxpayer you can also claim additional tax relief through your self-assessment tax return.

Who faces the biggest pension challenge?

In October 2012, pension automatic enrolment was launched and by March 2019, over 10 million workers had joined a workplace pension arrangement.

However the self-employed were left out of auto-enrolment which has caused a sharp divergence between employees and self-employed since 2012. The Institute for Fiscal Studies (IFS) in 2018 reported that 15.1% of the UK workforce (4.8 million people) are self-employed but only 16% of those contribute to a private pension.

Those working part-time also face a potential pension deficit when they retire as 24% of part-time workers surveyed say they have no pension savings. 60% of the sample who are not currently working – whether unemployed or full-time parents - have no pension savings.

Every individual needs to ensure that they have adequate financial planning in place for their retirement.

No room for pension complacency

Even if you have pension savings in place, it is important that you regularly assess what you have accumulated and also ensure that it is invested in line with your attitude to risk and expectations.

Income in retirement may come from many different sources, including the State Pension which is a maximum of £175.20 a week in this tax year. You can check if and when you will qualify for the full State Pension by going online at Your State Pension can be a cornerstone for your retirement plans.

Some of those who think they have no pension savings may be pleasantly surprised to find pensions from previous employers they may have forgotten about. It is always worth contacting previous employers to see if there are any pension savings in your name.

You should receive regular updates from pension scheme providers but if you have not provided an up-to-date address or you have lost track of any previous employer pension schemes, you can contact the employer directly or the government’s Pension Tracing Service.

This free service allows you to track down pension scheme contact details from a database of UK employers, go online at or phone 0800 731 0193 (Monday to Friday, 9.30am to 3.30pm)

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