Is it ever too late to start a pension?

How much your pension is worth usually depends on what you contribute through your working life. It’s never too late to get started – here’s everything you need to know.
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Pensions are long term investments. You may get back less than you originally paid in because your capital is not guaranteed and charges may apply.

Building up pension savings is really important to make sure you’re set up to have a comfortable retirement. The younger you are when you start, the easier you’ll find it to put enough aside. That’s because cumulative interest means your savings grow exponentially over time. But if you’ve left it late to get started, don’t panic. There are still lots of steps you can take to get back on track. Follow our step-by-step guide to getting retirement ready.

Make the most of your tax-free ISA.

When should you start saving into a pension?

It’s best to start saving into a pension as early as you can, to maximise your retirement fund. Someone who starts in their 20s will have to put aside a much smaller proportion of their earnings to build the same pot as someone who starts saving in their 40s.

That doesn’t mean it’s too late to start planning for retirement, whatever age you are. Even saving later in life can help you boost your income levels once you stop working. If you’ve not started already, act fast, the quicker you start paying in, the easier it’ll be to make up the shortfall.

You can add funds to your pension fund each year. You’re allowed to save the equivalent of your salary or £3,600 in your pension annually - whichever is higher – up to an annual allowance limit of £40,000 a year. It’s a tax-efficient way to save money – and the tax relief you get from the government means your savings will build quicker than you think.

How much you’ll need to retire comfortably

When working out how much you’ll need to save, you first need to know what kind of income you’ll want when you stop working. This will vary from person to person. For instance, if you were earning £20k when working, you’re unlikely to need £50k a year when you stop. But someone whose job pays £100k a year may find they need significantly more than £50k per annum.

As a rule of thumb, most experts say you’ll need an income of 50-66% of your salary pre-retirement. So if you earn £30k a year, you’ll want your pension to pay between £15-20k to be comfortable.

But everyone is different – and you may need more or less depending on your future plans. For instance, if you’re going to be renting in retirement, you’ll need more cash than someone who owns their home outright. If you have older children, you might need to set aside money to help with university fees, while if your kids have flown the next, you might get by with less capital. You need to take other savings and sources of income into account – for instance, if you’re a landlord, that income might go towards your retirement needs, meaning you need less in your pension overall.

Ask yourself these questions:

  • What outgoings will you have? Will you still be paying for a mortgage or rent?

  • What lifestyle will you want? Will you explore the world, improve your home or just live a quiet life?

  • Will you want to help your children and grandchildren out financially?

If there are things you’ll want to do in your retirement, you’ll need money. That means you’ll need a plan of action.

It’s important to try to clear your debts before you retire. Otherwise, you could see your retirement income stretched, leaving you without enough to live on. If you haven’t saved enough to cover what you owe, you’ll need to keep working to pay off your debts or you’ll risk defaulting.

How much do I need to save to reach my retirement goals?

Once you know what income you want when you stop work, you can see how much you need to set aside to reach your goal.

The easiest way to do this is with a calculator online. These handy tools add up your state pension entitlement and how much you’re planning to save each month and then predict the retirement income you’ll get.

If there’s a specific figure you’re aiming for, they’ll show you the shortfall. You can also tweak your retirement date or savings amount to see how much extra you need to put in to fill the gap.

Here are some of the free calculators available online:

Unfortunately, you may find the amount you can afford to save each month won’t give you the retirement income you want. In this case, there are other levels you can pull. You can move your retirement date later, consider a second job, or think of other ways to make extra cash such as renting a room to a lodger. 

If you’re worried you won’t have enough income to live on when you retire, speak to an independent financial adviser to discuss your options.

What type of pension should you get?

If you’re getting on the pensions ladder for the first time, you need to make sure you’re saving in the right way. 

First, check that you’ll get the maximum state pension, and then think about adding extra savings to a workplace scheme if you can access one, or a private pension if not.

Here are some of the main pension options and what to be aware of:

State pension

The amount you get from your State Pension will depend on how many years of National Insurance contributions you have.

You need 35 years of payments or credits to get the full amount, but if you’ve missed any, you can make a lump sum payment to buy the years you’re lacking in the years running up to your State Pension Age.

You get your State Pension as an income each month when you reach State Pension age.

Here’s more information on the State Pension.

Workplace pension

If you work for an employer, they may have a workplace pension scheme that you could join. If you’re over 21 and earn more than £10k a year from a single employer, you should be automatically enrolled in the workplace scheme. You can read our guide to find out whether auto-enrolment applies to you.


But even if you don’t meet those criteria you have the right to ask. Speak to your employer and find out if they have a scheme and whether you can join it. 

This is the best way to save for the future because the schemes are low cost and well-governed and most people get employer contributions from their bosses too. If you don’t earn enough, your employer doesn’t have to top up your savings, but lots will anyway. It’s worth asking your manager or HR team for more information if they haven’t talked to you about it upfront.

Here’s more information on workplace pensions.

Self-Invested Personal Pension (SIPP)

A SIPP is a type of personal pension that is completely self-managed, including decisions around investment strategies and fund positions.

You can invest as much as you like into this type of pension. It’ll pay out when you reach your retirement age, just like a workplace pension does.

Because of the investment knowledge required, this is probably only suitable for people who've done a lot of research. If you want something simpler, there are private pensions where the company will ask you about risk appetite and then select investments for you.

Find out more about how SIPPs work here.

Is it worth starting a pension at 50?

Many people who've reached the age of 50 and haven’t yet started a pension assume it’s too late to start one.

But, if you can start putting away cash into a pension fund now, it can still be one of the best ways to invest for your retirement.

Even if you have no pension at 50, going by a typical State Pension age of 67, you still have 17 years left to invest. A lot can be done in that time.

So if you’re approaching retirement and haven’t done anything yet, act fast to give your investments the maximum opportunity to grow.

The main advantage of using a pension fund over a Stocks and Share ISA is that the Government gives tax relief on money paid into your pension.

HMRC will credit the income tax you pay into your pension each year, up to certain limits.

In the 2021/22 tax year, you can get tax relief on private pension contributions worth up to 100% of your annual earnings or £40,000, whichever is lower. You have to be a UK taxpayer to benefit from this.

You get the tax relief automatically if your:

  • Employer takes workplace pension contributions out of your pay before deducting Income Tax 

  • Rate of Income Tax is 20% – your pension provider will claim it as tax relief and add it to your pension pot.

Will my children pay inheritance tax on my pension when I die?

One of the very good things about pensions is that they’re not subject to inheritance tax when you die. This means your pension can be passed on to children and grandchildren without them having to pay. The same can’t be said for property, for example. So, opening a pension can be a good way of helping out your family.

If you die before you reach 75, your beneficiary can draw on the money as they choose without paying income tax. However, if you’re over 75 when you die, they will have to pay income tax on withdrawals. This will be charged at the highest rate of income tax that they pay. 

How else can I boost my savings for retirement?

Having a pension is great, but if you want to boost your savings in preparation for retirement, there are some other things you could do to help.

Here are some ideas:

  • Work past retirement age. The longer you work for, the longer you can save into your pension pot. You’ll also benefit from a higher state pension if you do this. Or, perhaps you could consider a phased retirement, gradually transitioning to full retirement over a number of years.

  • Create an extra source of income. You could get a part-time job. Or you could get a lodger if you have the space. Alternatively, you could set up your own sideline business doing something you enjoy. This would give you something to focus on in your retirement, which you’re passionate about and which brings in money.

  • Find your old pensions. You may have had a series of pensions over the course of your working life. Finding these could be very useful in terms of boosting your retirement funds.

Speak to an independent financial adviser. They’ll be able to discuss your options with you and help you to make a plan.

You can help ensure you have the retirement you want by finding the best personal pension plan to make your money work as hard as it can.

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