You might think pensions are too complicated and you don’t understand them, but the fact is they are a crucial, tax-efficient savings vehicle that can help give enough money to live on in your retirement.

Worryingly though, only two-thirds of UK adults are currently saving for retirement, and of those many aren’t saving at a level that will give them the pension pot they hope for in retirement.

The sooner you start saving the more your pension will grow
When you save money into your pension you’ll aim to make a return on your investment. The following year you’ll hopefully get a return, not only on your initial investment but also on the return from the previous year. And so on. This is called compound interest.

The benefits of saving into a pension

To put it simply, a pension is a long-term savings plan with tax relief. This has a number of advantages which we’ve detailed below that will allow your retirement savings to grow more quickly than in a different type of investment. Your payments are invested so that they grow throughout your lifetime and provide an income for you in retirement (from age 55 onwards).

Clearly, pensions are complicated, but what’s absolutely clear is that advice is critical if you want your money to work harder for you. If you’d like to discuss this in more detail, please speak to us and we’ll talk you through your options.

There are rules regarding how much you can contribute to a pension and how much the government will add to your contributions through tax relief.

The sooner you start saving the more your pension will grow
When you save money into your pension you’ll aim to make a return on your investment. The following year you’ll hopefully get a return, not only on your initial investment but also on the return from the previous year. And so on. This is called compound interest and means you are effectively earning money on previous gains which is all added to your pension pot.

A tax-free lump sum when you retire
You can usually take up to 25% of your pension savings as a tax-free lump sum when you take your benefits and then use the rest of your pot as you choose. In the past, you generally would have had to buy an annuity to provide you with a retirement income, but since the ‘pension freedom’ changes you now have a lot more choice.

Tax relief

If you put money into a personal pension scheme it qualifies for tax relief. In other words, some of the money that would normally have gone to the government in the form of tax will now go into your pension pot @ 20% for basic-rate taxpayers, 40% for higher-rate tax payers and 45% for additional rate payers.

As an example, for a basic-rate taxpayer for every £100 you pay into your pension, the government will top it up by £25 gross giving you a total contribution of £125. You can get even more if you’re a higher-rate or additional rate taxpayer.

A ‘free’ pay rise from your employer


Your employer is required to ‘auto-enrol’ all their workers earning over £10,000 and aged 22 or over into a workplace pension scheme to help people save more for their retirement. You can then make contributions to this pension plan and your employer will normally also contribute on top of this.

Unless you really can’t afford to contribute or have other financial issues to prioritise, dealing with debt for instance, opting out of your employer’s pension scheme is like turning down the offer of a pay rise

If you’re concerned you’re not saving enough into your pension, or you want to check you’re on track for a comfortable retirement, please get in touch.

The value of investments and any income from them can go down as well as up and you may not get back the original amount invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.