Saving for retirement

Why save into a pension?

Pensions have big advantages when saving for a retirement:

• They’re tax efficient, so you keep more of your money
• They’re invested, so your money has the potential to grow

The tax benefits of a pension

Pensions normally give you:

• Tax relief on the money you pay in
• 25% tax free cash when you take your money (up to a limit of £268,275)
• And there's no tax on any growth

You can normally take money from a pension from age 55 (rising to 57 from 6 April 2028). There are limits to the tax relief you can get.

Laws and tax rules may change in the future. Your own circumstances and where you live in the UK will also have an impact on tax treatment.

Employer matching could boost your pension

Most employees in the UK have access to a workplace pension.

If you pay into this, so will your employer. The minimum is 5% of your salary from you, and 3% from your employer – but many employers will pay more.

Some employers will match extra contributions you make. Others will pass on the National Insurance contributions they save by paying into your pension via salary sacrifice.

If you’re not sure, check with your employer.

Higher rate taxpayer? You could get extra relief

Pensions are particularly rewarding if you pay tax at a higher rate*.

As well as automatic tax relief when you pay in, you can normally claim extra tax relief by contacting HMRC, or via your tax return.

If you pay into a workplace pension via salary sacrifice, you won’t need to claim – all tax relief happens automatically.

*This normally applies if you’re a Higher or Additional rate taxpayer in England, Wales or Northern Ireland, or pay the Intermediate, Higher, Advanced or Top rate in Scotland.

Moving other savings into a pension

Pension payments don’t have to come from your salary.

If you want to, you can move other savings – for example, money in a bank account or ISA – into your pension. You’ll get tax relief as long as you are within your Annual Allowance.

Guide: Maximising tax efficiency

Investing for the long term

The money in your pension is normally invested. This means it has the potential to grow over time and beat inflation, though this isn’t guaranteed. Generally, the earlier you start saving into a pension, the better. This is because:

• Your money will have the potential to grow for longer
• You’ll pay in more overall

You can choose your own investments, or one of the ready-made or ‘default’ options on offer.