Making the most of a pension when you're young

MoneyPlus Features Team

How you approach your pension plan early in your working life could make a huge difference to how much money you have later on. We explain some pension basics – how it works, why it can be a good idea to make the most of it when you’re young and how to go about it.

When you’re in your 20s and early 30s, for a lot of people money concerns will focus on the near future – saving for a rainy day, putting something towards clearing that student debt – oh – and making your cash last until payday.

Pensions aren’t something that many people begin to really focus on until they hit their late 30s, 40s or beyond. But read on… because finding out about pensions and doing a little bit of clever saving now could help set you up for a brighter future.

First of all, what’s the State Pension and why is it important?

The State Pension can offer a guaranteed income when you reach 66 (currently, but this age will rise to 67 by 2028 and is likely to rise to 68 in future).  

The full State Pension is worth just over £9,000 a year at the moment but how much of that you’ll get will depend on your own National Insurance record.

While your State Pension might cover a basic standard of living in retirement, most people will want more than just the basics. That’s where workplace and private pension plans come in.

What’s a workplace pension?

All employers are obliged to provide a workplace pension plan and you’ll be automatically enrolled in it if you’re aged 22 and earning at least £10,000 a year. What this usually means is that some of your money is taken from your pay and invested in your workplace pension. Your employer also adds some money and the government gives you a tax break on your contributions called ‘tax relief’.

This means that as you save, you’re getting extra contributions from your employer and support from the government, none of which would be available if you aren’t paying into a pension. Find out more about this in Top tax tips to make the most of your pension savings. Bear in mind that tax rules and legislation may change and your own individual circumstances, including where you live in the UK, will have an impact on your tax treatment.

Usually you can access money from a modern, flexible pension from the age of 55, though this age may change in future.

How much will I be saving?

If you have a workplace plan, your employer currently has to contribute a minimum of 3% of your qualifying earnings. Some employers choose to pay more and others will pay more into your pot if you do – known as matching.

It’s worth considering paying in more than the minimum yourself if you can afford to, because saving as much as you can for as long as you can could make a big difference to the lifestyle you would like and can afford later in life. Bear in mind that your pension plan is invested, so its value can go down as well as up and it may be worth less than what was paid in.

If you do decide you want to pay more into your pension plan, you can usually do this by increasing your regular payments or by making one-off payments, but check what your options are with your provider or employer. Standard Life customers can do this online or via our app. And remember, the more you put in, the more tax relief you receive too.

What's a private pension?

In a nutshell, it’s a pension you set up yourself. Most pension companies offer them. They’re quick and easy to set up online, and you can make monthly and one-off payments that suit you. You can also usually stop your payments if you need to.

Why start early and how much will I need?

Saving for your future is a long-term goal. The sooner you start, the longer your money is invested and has the potential to grow.

How much you’ll need to save will depend on what sort of lifestyle you’d like to enjoy later in life. It’s important to be aware that paying in only the minimum required is unlikely to be enough for a comfortable retirement in future.

A good starting point is the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards, which can help you understand how much everyday living and some luxuries cost in retirement. These could help you set a goal for your pension plan.

Then, by using our online pension calculator you can see how much you could have in your pension pot and how much extra you might need to save to get to your goal.

Do I choose where my pension is invested?

If you’re registered for online servicing with Standard Life it’s easy to check where you’re invested and make changes if you wish. Depending how hands-on you want to be, there are ready-made options and options that allow you to take more control of your investments.

Before making any decisions you can read more about investment risk and consider how comfortable you are with risk and find out more about your options in How to choose and review your pension investments

What if I have several pension plans?

If you’ve done a bit of job hopping, you may have several different pension plans from different employers, which can be hard to keep track of. If you want to explore simplifying things by bringing them all together, you can read more about finding lost pensions and how to bring your pensions together hereTransferring won’t be right for everyone and you will need to consider all the facts before deciding.

Then you can roll your sleeves up, log on to our retirement calculator and find out just how much you need to save now to look forward to a better future.

Meet the 26-year-old pension saver

“The importance of having a pension was drilled into me by my parents and my work. Both made me realise that starting your saving young makes a difference,” says George, whose job as an investment analyst gives him insight into saving and investing.

“Our company has a pensions adviser who came in to speak to us, and that made me realise that it’s important to save into a pension and it’s also a really tax-efficient way to save your money.”

Looking to the future, George has adjusted his contributions so that he’s now putting away extra money every month.

“I’ve decided to save more on top of my employer’s contribution, and I’ve been pretty good at setting aside a decent chunk for saving. I’ve now upped my pension contribution.”

Because of his job and his knowledge about investments, he also keeps an eye on the performance of investments in his pension pot and has made some choices himself about where the money is invested.

If you can take some simple steps today to help make the most of your pension like George, your future self may well thank you.


The information here is based on our understanding in November 2020 and shouldn’t be taken as financial advice. If you're unsure about anything you can speak to a financial adviser, there is likely to be a cost for advice.


Standard Life accepts no responsibility for the information contained in external websites referred to in this article. They are provided for general information only.