The key to growing your pension? Compound growth

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Across the UK, uncertainty about the future is shaping our attitudes towards money. We’re keen to save more and invest less – and that could mean missing out on long-term returns.

Today, some 83% of people in the UK say the world feels less certain than it did five years ago. That’s having an impact on the way we manage our money, with more of us prioritising cash savings over investments. 

But is that the right move? Although cash can be an important part of a pension portfolio, by not investing our money, we could be losing out on compound growth – the ‘growth on top of growth’ that investments have the potential to generate. 

We’ll take a closer look at compound growth a little later in this article. First, let’s briefly examine how inflation can impact the value of cash.

Cash and inflation

Right now, almost a quarter of us (23%) would prefer to build our cash savings than to place our money in any form of investment – including pension investments. That’s understandable; when things feel unpredictable, investing can feel more risky, and it can be reassuring to have a sum of money within easy access. 

Building cash savings can feel like a safer option – and cash can often play a significant role in a retirement fund – but for those who have some time to go before they retire, there may be some hidden risks to this approach.  The value or ‘purchasing power’ of cash savings could decrease over time due to inflation – the rate at which the cost of goods and services increases.

Let’s say the price of a washing machine is £500 today. If inflation is at 3%, in roughly a year’s time the price of the same machine could increase by 3% to £515. Similarly, if you chose to keep £500 in cash in your wallet, you would be able to buy less with it than you could a year ago.

Currently, the inflation rate is fluctuating around 3%, but in the past few years it’s been as high as 11.1% – showing how the purchasing power of cash can change over a relatively short period.
Most of us understand the risk of investing – we know the value of our investments can go down as well as up. But fewer of us seem to be aware of the risk inflation poses to the value of our cash savings.

 

What is compound growth?

Keeping money in cash instead of investing could also risk losing out on the opportunity for compound growth. While savings and bank accounts can also benefit from compound interest, pensions may offer additional advantages such as tax relief and employer contributions, which can significantly enhance long-term growth.

Simply put, compound growth is ‘growth on top of growth’. If an investment increases in value, any future returns are based on the higher amount, leading to more growth over time.

The longer money is invested, the more opportunity it has to compound in value, as well as to recover if its value declines; something that is often overlooked when it comes to our pensions. As much as 65% of the final value of a pension at retirement age can come from investment growth, yet only 25% of people in the UK are aware that growth is the top contributor to overall pension value.

The earlier money is invested, the more time there is for investments to grow in value – but there is still opportunity for growth at every life stage.

If you’re under 40

Time is likely to be the biggest driver of growth when it comes to your pension investments. Even small amounts invested over long periods have the potential to grow significantly through compounding returns. 

Learning the basics of compound growth can help you get to grips with the long-term potential of investment returns. At this stage, you may wish to review your regular pension contributions and the level of risk you’re willing to take on.

If you’re in your 40s and 50s

Growth still matters. Keeping money invested and even increasing contributions could enhance the effect of compound growth.

Some people choose to invest more into their pension funds at this stage to increase the potential for higher returns. It’s a good idea to check that you’re comfortable with your current risk profile – something that a financial adviser can help you to understand. Many pension providers offer online ‘attitude to risk’ questionnaires to help you choose investments that align with your goals and comfort with risk.

If you’re in your 50s and 60s

Growth is still possible. In fact, this is a time where investments could grow significantly, due to having larger amounts invested (often as a result of previous compound growth). 

Now could be a good time to balance risk in your investment portfolio and prioritise stability to improve your chances of retiring with a pension fund in line with your desired amount.

Planning and reviewing

Less than half of people in the UK are feeling positive about their finances. If you’re feeling uncertain, there are things you can do to feel better about your financial future. Research shows that doing even a little financial planning can help us to feel more positive about our finances.

It’s a good idea to take an active role in your financial planning. For example, you may already be saving the minimum 8% of your earnings into a pension via auto-enrolment. But is that enough to save for your future? For many people, it may not be. Resources like the Retirement Living Standards can help you understand how much you might need to lead a comfortable lifestyle in retirement. Taking even small steps today could make a meaningful difference to your future.

If you’re feeling uncertain, taking a small step can make a real difference. Taking time to review your current savings can help you build a clearer picture of what you might be on track for in the future. To get an idea of what your pension could be worth, you can try our pension calculator.

If you’re a Standard Life customer, you can also log in to your online account to access helpful tools and information designed to keep you on track. You’ll find more support on our website too, including FAQs and ways to get in touch if you need a hand. It may also help to speak to a financial adviser, who can talk things through with you and help you decide what feels right for your situation. Standard Life’s Financial Advice service could be one option to consider.

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The information here is based on our understanding in May 2026 and shouldn’t be taken as financial advice.

A pension plan is an investment. Its value can go down as well as up and could be worth less than was paid in.

Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.

Standard Life accepts no responsibility for information on external websites. These are provided for general information.