🎓 Pensions Academy Lesson 7

We know it can be tempting to put off sorting out your pension when retirement feels like a lifetime away or you’re focused on shorter-term goals. We like to live for the present and focus on the ‘here and now’.

When you combine this with other obstacles – the feeling that paying into a pension amounts to a loss of income now, having the self-discipline required to save regularly, or that it might be too late to make a difference – it’s no surprise that getting on track for retirement can seem like a challenge. But when it comes to your pension, it’s never too early (or too late) to get started.

We’re sharing our top tips on how to start saving for retirement if you’re in your 20s, 30s or 40s+, helping you to set your pension up for success. 🏝️


How to start saving for retirement in your 20s

Retirement currently seems like a long way off, but you can make small actions now that will have a big impact on your retirement and trust us, your future self will thank you. Plus, being in your 20s brings good news – you have time on your side. ⏳


Tip #1 – Start early; save what you can afford

Even relatively modest savings now can make a real difference to your financial future, all thanks to the magic of compounding – the return you get on your original investment, plus the return you get on your returns.

Say you started contributing £100 a month into a pension from the age of 25. After 40 years at an annual growth rate of 5%, the £48,000 you invested could be worth £130,739 after fees (assumed 0.6% per year).

However, if you delay that investment by 20 years and start when you’re 45, the picture looks less rosy. Even if you doubled your monthly amount to £200, the £48,000 you invested could be worth just £76,747 by the time you reached 65.


Starting to save for retirement early can make a huge difference (increasing the size of your pot by about 70% in the example above). This means it’s well worth setting aside whatever you can afford as soon as you can and start growing that pension.


Tip #2 – Make the most of free money from your employer contributions and government tax relief

If your employer offers a workplace pension, consider paying in whatever amount will maximise your employer’s contribution.

With auto-enrolment, your employer must top up your pension by at least 3% of your eligible earnings when you contribute 5%. You can choose to opt-out of this scheme, but doing so is like missing out on free money because you lose your employer’s payment.


Here’s an example of how auto-enrolment works – if you earn a salary of £35,000 and contribute 5% of your earnings into your workplace pension, you’ll increase your pension by £1,750 a year and benefit from a minimum of £1,050 (3%) additional contributions from your employer – setting aside a total of £2,800 into your pension.

If you opt-out of your workplace scheme, you’ll receive the 5% as cash in your pay cheque, but at least 20% of that value will be eroded by tax, and you’ll also miss out on your employer’s free top-up.

Don’t forget that by paying into your workplace or personal pension, you get tax relief (which we covered in Lesson 5). If you’re a basic rate taxpayer, you can think of pension tax relief as a 25% top up on your pension contributions. So if you pay in £100, you’ll get an extra £25 to boost your pension pot even further! 💰


Tip #3 – Save into your pension with round ups

Saving doesn’t always have to mean sacrifice. Why not round up your everyday purchases to the nearest pound and invest the spare change directly into your pension? Using the Moneybox round ups feature can help you boost your pension pot effortlessly. Did you know that the average Moneybox user saved £500 in 2020 from round ups alone? 🙌 As you can see, those pennies can turn into pounds very soon, and thanks to compound interest, could really grow your pot by the time you retire.


How to start saving for retirement in your 30s

You’re in your 30s and it’s likely you are earning more compared to your 20s. If you’re just beginning to save into a pension, it is recommended that you contribute 15% of your annual income into your pension as a total across all pots. This will aim to give you a similar standard of living in retirement as in working life. This could also be a time to start thinking about what sort of lifestyle you want to lead in retirement. If you currently have outgoings like a mortgage and childcare costs, what will this look like in the future?

Do you expect your expenses to decrease or increase? Perhaps you might want a comfortable retirement with more holidays and hobbies? These are all going to impact your spending in retirement.


Tip #1 – Become familiar with the Retirement Living Standards

As we mentioned in Lesson 3, the Pensions and Lifetime Savings Association states a “moderate” level of annual income in today’s money for a single person in retirement is £23,300 and £34,000 for a couple. If you dream of having some luxuries in retirement, the “comfortable” level of annual income recommended for a single person jumps to £37,300.



Tip #2 – Save smarter

Don’t disregard the tips above for our friends in their 20s – these will still be very relevant to you in your 30s to help boost your pension savings.


If you’re continuing to build your career, there’s another smart way to save into your pension over the long-term. You could consider adopting the strategy of the Save More Tomorrow (SMarT) programme. This is where you commit to increase how much you save into your pension at each pay rise – for example, 25% of your salary increase – and can really help ramp up your pension contributions over time. Remember, you get tax relief on top, so the more you pay in, the more free cash you potentially get from the government!


How to start saving for retirement in your 40s+

Now it’s time to get serious about your retirement savings. If you’re just starting out, it is recommended that anyone over the age of 35 should be putting away at least 18% (or half your age) of their annual earnings into a pension pot to retire at age 68. But you should also consider if this is the right age to be retiring and if you’re on track to fund your lifestyle – see the ‘retirement lifestyle savings milestones’ table above.


Tip #1 – pay attention to pension fees

While you won’t have much control over your workplace pension provider, you can research and compare providers for a personal pension. If you’re seeing fees of more than 1% a year, this could really eat into your annual investment returns, and as you don’t have as much time to save, this can make a huge difference to your final pension pot. 📊

As an example, say you start saving £500 a month into a personal pension with a 0.75% charge. While we can’t predict future performance, if your fund grows by 5% a year, it will be worth around £364,000 in 30 years’ time – after costs have been deducted.

But what if the charges are double, i.e. 1.5% instead of 0.75%? It doesn’t sound much but the fund will only earn 3.5% a year after the fees are deducted, even if the investments performed in exactly the same way. That slices over £45,000 off your pension! By switching to a cheaper pension, you’re keeping more of your money.


Tip #2 – Find lost pension pots

Think you’re only just starting to save into a pension now? Think again, as you could have old pensions you didn’t even know about! As a result of auto-enrolment for workplace pensions, if you started a new job from 2012 onwards, earn over £10,000 and worked in the UK, it’s likely you will have been automatically enrolled into the scheme with the minimum contribution coming out of your pay before it hit your bank account.

If you think you may have some old, stranded pensions, you wouldn’t be the only one… A staggering 2.8 million pension pots worth £26.6bn are “lost” according to estimates from the Association of British Insurers – the equivalent of £13,000 per plan! No need to worry, there are ways you can track these down and at the end of it, you might have a nice pot of money you didn’t even know you had. 🤑

At Moneybox, we’ve made tracking down your lost pots easier than ever. 🔎 With our in-app Pension Provider Search Tool, all you need to do is share the name of your old employer and the years you worked there and you’ll find search results for your pension provider – instantly! We have one of the largest databases in the UK with over 20,000 pension providers. We also have a team of Pension Detectives on hand to help track down the pots our tool hasn’t come across before, and will be able to help with any questions you have. 🕵️ Once you’ve found your lost pensions, have a saving plan in place and know when you’re going to retire, you can sit back and relax knowing your financial future is on the right track.


🎓In the next lesson, we take a look at the 5 reasons why it could be worthwhile combining your old pension pots.



When deciding whether to transfer your pension, it’s important to compare the charges and benefits between Moneybox and your old provider, and whether the risk and reward profile of the investments we offer matches your needs. As with all investing, the value of your pension can go up and down, and you may get back less than you invest. Tax treatment on your pension contributions depends on individual circumstances and is subject to change. Payments you make into your pension won’t be accessible until the minimum pension age (currently 55, increasing to 57 in 2028). If you’re not sure whether the Moneybox Pension is right for you, a suitably qualified financial adviser can help you decide. Moneybox Personal Pension T&Cs Apply.