Six reasons to pay your pension some attention

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It's Pension Engagement Season, and so the perfect time to remind you why your pension is worth a little respect  – whatever your age and income.

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Pension Engagement Season has officially arrived for its first year ever to bring together pension providers, government and key stakeholders to help people understand more about their pensions. It joins Pension Awareness Week and Pensions Awareness Day to encourage everyone to pay closer attention to their pension - so it’s a great opportunity to get closer to yours.

Your pension could be the most valuable thing you own (or one of them) and certainly one that could make a huge difference to your future lifestyle. That means it deserves some love and attention – and not for just one day a year. Here are six reasons why.

Reason 1: Your employer will top up what you save

Assuming you’re over age 22 but under the State Pension age, and earning at least £10,000 a year, your employer has to contribute to your pension scheme. It’s called auto-enrolment and, in a nutshell, it means that a minimum of 8% of your pensionable earnings will be paid into your pension plan. Your employer needs to pay at least 3% of this, and the remaining 5% would come from your salary. The amount your employer pays and what you have to pay will depend on the minimums your employer has set for your scheme.

Reason 2: You get an extra boost from the government

Paying into a pension plan opens up some very attractive tax benefits. The government wants us to save for retirement (rather than have us all depend on the State Pension), so it gives you tax benefits on any pension payments you make.

Exactly how you get these tax benefits and how much you get depends on what type of pension plan you have (for example, workplace or personal), which tax bracket you’re in and where you live – after all, you wouldn’t really expect anything involving tax to be explainable in one simple sentence, would you? 

But those details aside, it’s a similar story for everyone: if you put money into a pension plan, some of the tax you’d have paid on that money goes into your pension pot instead. You can see below what this means in practice for a personal pension, and there’s more in our article on pension tax relief. 

Some workplace pension schemes offer tax benefits in a different way to what’s shown below (for example, if you’re part of a salary sacrifice or salary exchange scheme, you won’t need to claim anything back). So do check with your employer how this works for you if you’re not sure.

Reason 3: There’s more good news on tax

We may be skipping a few years ahead now (depending on your age), but when you retire, there are even more tax benefits. Under current arrangements, people with a workplace or personal pension can normally take up to 25% of their savings tax-free from the age of 55 (it will change to age 57 from 2028).

So think about it: your money gets a tax boost on its way into your pot, and 25% is tax-free when you take it out. Surely something that tax-efficient deserves a little love?

Reason 4: Time is on your side

The earlier you start paying into your pension scheme, the more loveable it may turn out to be. Putting money into a pension earlier in your career means that your money is invested over decades. And through a wonderful mathematical effect called compounding, you may get returns not only on the money you invest, but also on any growth achieved in previous years. It’s like a snowball effect. 

The effect of time and compounding mean that even small increases in your regular pension payments can make a huge difference over the decades. Remember, however, that the value of investments in a pension can go down as well as up and could be worth less than what was paid in.

Reason 5: Pension investing may be easier than you think

Loving your pension doesn’t have to mean becoming an investment expert or devoting your life to following the stock or bond markets. Other people are here to do that for you. 

For example, we have a range of ready-made funds designed to make it easy for you to save for retirement. Our own teams of experts do the investment legwork, while you could top up the TLC with occasional or regular checks, using our Pension Calculator.

Reason 6: Your pension is yours, all yours

Your employer and the government may help you boost your pension plan, but the money in the plan is yours, not theirs. So you get to choose what you do with it.

While you’re still paying into your pension pot, you can make choices about where your money is invested.

Then when you start thinking about retiring, you have plenty of flexibility about how you take your money. Your different options include taking it all in one go as cash, dipping into it more slowly, buying an annuity, or a combination of those. Before deciding this, it’s a good idea to talk through your tax and income position with a financial adviser. If you don’t have an adviser, you can find one at unbiased.co.uk.

You can find out more about the different ways to take your pension money in our guide.

Try a little tenderness

Recent research has pointed to some alarming statistics around pension planning in the UK. For example, one in five Brits have no pension savings at all, according to figures from unbiased.co.uk, while the Pensions and Lifetime Savings Association (PLSA) believes strongly that even with auto-enrolment, many people are not building up sufficient pensions to provide the level of retirement income they expect. 

Showing your pension some love and attention may be your first step to improving your own prospects:

• If you’re a Standard Life customer, downloading our app could be a good start.
• Then you could move things along by using our Pension Calculator to see how much your pot might hold in the future, or having a go with our Retirement Calculator to show the income you may need in the future. 

The information here is based on our understanding in September 2022 and shouldn’t be taken as financial advice.

A pension is an investment, the value can go down as well as up, and you could get back less than you paid in.

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.