There are many who don’t currently have a pension, or who may have stopped contributing to one. If this sounds like you and you’re starting to think more about your finances as you approach retirement age you may be wondering if it’s too late to start paying into a pension.
While the majority of adults in the UK have some form of private or workplace pension, there are many who, for one reason or another, don’t currently have a pension. There are also a lot of people who may have been contributing to a pension in the past but, at some point, have stopped. If this sounds like you and you’re starting to think more about your finances as you approach retirement age you may be wondering if it’s too late to start paying into a pension.
The short answer to this is ‘no’ – it’s never too late to start contributing to a pension.
In practical terms, there is absolutely nothing stopping you from contributing to a pension later in life. You can even contribute to a pension if you have reached ‘pension age’ and started claiming your state pension! Whether it’s through an auto-enrolment scheme set up by your employer, or even a personal pension set up by yourself, it’s never too later to start contributing, or to increase the amount you contribute.
But just because you can contribute to a pension, does it mean that you should? After all, we’re often encourage or expected to be contributing to our pension throughout our working life, so coming to this later in life can seem a bit daunting. Is it still worth it if you hope to retire in a few years?
It goes without saying that the more you are able to contribute to your pension, the more likely you are to be able to live the lifestyle you want during your retirement. It’s also true that the earlier you start contributing to your pension, the easier it becomes to achieve these goals. However, while starting late may leave you at a bit of a disadvantage, there are a still a number of important reasons why it’s much better late than never.
Firstly, every penny saved or invested now is something that will help improve your financial situation during retirement. Whether that’s via a pension, or another means such as savings account or a stocks and shares ISA, putting even a little away now could be a big help later in life*.
If you’ve got a bit of money left over each money, it might be worth putting this into a pension. Pensions, along with other savings and investment options give your money the opportunity to grow in value over time so, meaning your money could go further than it would if it stayed in your current account. And if you’re currently not able to put some money aside, it’s worth thinking about what you would like to do so that you have a plan in place for when you are next able to*.
The most important way that a pension is a great way to prepare for your future is the benefits and incentives that make it a particularly cost-effective way of planning for your retirement. This is because pension savings for people under the age of 75 benefit from tax relief, which means you get more from your money. When you contribute to a pension, your contributions are taken directly from your salary before any tax deduction, so the tax you would otherwise pay on those earnings is paid into your pension instead. There are some limits on how much tax relief you can get but most people can get tax relief on pension contributions up to the 100% of their annual earnings. Pension contributions made after the age of 75 are not eligible for tax relief.
Even better, if you’re still working, every time you pay into your pension your employer also makes a contribution, which helps to boost the total you put away each month. Under the rules of auto-enrolment, there is a minimum contribution rate of 8% of your qualifying earnings (on earnings falling between £6,240 and £50,270 for the tax year 2024/2025). Employer’s must contribute at least 3% (though they can contribute more), with employees paying in the remaining 5%.
So, what does all this mean? Well, if you’re a basic rate tax-payer earning £30,000 and contributing the minimum of 8% (5% from you, 3% from your employer) it means that a £200 contribution to your pension pot would only ‘cost’ you £100 once tax relief is taken into account – which makes it a great way to save for your future.
Some employers offer to pay more than the minimum 3% into your pension if you choose to increase your contributions too. This is known as ‘contribution matching’. It’s a good idea to check if your employer offers contribution matching as making the most of this is a straightforward way of getting even more for your money when it comes to your pension.
A workplace pension is also an especially straightforward way of putting money aside each month as most of the admin is handled for you. Your contributions are automatically deduced from your salary each month, so you don’t need to remember to transfer your funds. And because this happens at the point of payment, it almost works as a ‘stealth’ saving in that you’re far less likely to miss the money you are contributing as it was never in your bank account to begin with!
If you’ve not been able to save into your pension until now, don’t be discouraged - it may be a cliché, but it truly is better late than never. You can still be benefit from the tax benefits and employer’s contribution that make a pension such an effective way of making your money work harder to help achieve the type of retirement you want.
*Please note that investments within your pension and/or stocks and shares ISA can fall as well as rise and you may not get back the amount invested.