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When Should I Start a Pension?

July 26, 2023

If you are just beginning your career you might be wondering when you should start paying into your pension.

A pension might be the biggest source of income during your retirement. Though you might be eligible for a state pension, which varies in amount based on your employment history, this sum alone is unlikely to be able to provide you with enough financial support in your later years. Therefore, the sooner you start paying into a pension offered by your employer, the more potential your pot has for growth before you reach retirement age. 

There are many reasons a person might choose to defer paying into their pension. Perhaps you are just starting your career and want the extra money in your bank account. Maybe you are looking to save for a property or start a family. It could be you want to travel and enjoy life. The forward thinking of planning for retirement does not always feel like a priority when you are young. Though the investments of your pension pot may fluctuate over time and there is never any guarantee of performance, there are benefits of starting sooner rather than later.

Let’s look at the numbers.


Note: The below is an example situation using figures which are relevant at the time of writing. It is not a recommendation of action. When considering whether a pension is the best option for you, you should seek personalised advice from a qualified financial planner. 

Meet Emma

Emma is 25 years old and just started her first fulltime job working as an architect. She comes from a middle-class family and though she didn’t ever worry about money growing up, she was aware it needed to be spent thoughtfully and that “it doesn’t grow on trees.” However, she was never educated about money; debt, savings or the ways in which money can work for you.

At 25 years old she is on £30,000 a year, rents a flat with her partner and has £1,500 of credit card debt. She has no savings.

Part of her induction process with her new firm is setting up a pension, which is something Emma has never thought about. As a pension contribution needs to meet a minimum of 8% of a person’s salary per year, Emma’s company will put in 5% if she puts in 3%. If Emma puts in 5% her company will put in 8%. Since she is keen to save for a property, as well as have disposable income to enjoy her life, Emma decides to contribute 3% of her salary towards her pension.

Let’s take a look at what this would mean for Emma’s retirement fund:

Emma start a pension
Emma start a bigger pension

Remember, these numbers are based on Emma never receiving a pay rise, which is unlikely in her field. It also does not account for inflation or any interest she earns on her pension. By the time she is in her 40’s Emma could be earning close to £60,000 which will increase her pension contributions greatly.

Now let’s look at another example.

Meet Dave

Dave is in his 50s and has spent his entire life working hard and providing a comfortable life for his family. He has always focused on what he needed and wanted to do in the now and has never paid into his pension. He now makes £70,000 a year and with his kids getting older, he feels ready to start putting money aside. Like Emma, if he puts 5% into his pension his company will put in 8%. Dave has 15 years left till he can retire. Let’s look at the numbers:

Dave pension

Again, this does not include any pay rises, inflation or interest earned.

Before he reaches retirement age, Dave is unlikely to have a pay rise as substantial as Emma will across her 40+ career. Though his salary might increase, he has started saving into his pension much later which means his compound interest has the potential to be significantly less.  

It can be difficult to think ahead.

It can be difficult to think about what you will need and what you will want when you reach retirement age. With so much to do in this world, experiences to have, possessions to buy, bills to pay, it can feel much easier and more natural to spend your money on the immediate. But what will this mean when you get older?

Ask yourself if you want to be working forever. Ask yourself is the flashiest new phone, a fast car and four trips a year are worth never being able to escape the rat race. If the answer to these questions is yes, perhaps you can then keep spending. Keep living for the now and worry about the future later.

If the answer to these questions is no, then you owe it to yourself to gain an education on the best ways to manage your finances in order to ensure you have the space to breath and enjoy life as your old age approaches.

Just because you’re getting older doesn’t mean life will be more boring. It can be quite to the contrary, actually. You may have learned along the way that the things you thought were important to you aren’t. That the phone and the car fall way down the list over quality time and travels with people you enjoy being around. That the budget can include holidays AND savings. Just maybe not also two take aways a week and a hefty car payment each month.

Expert advice can make the difference.

This is why there is value and power in working with a financial planner. This is what cash flow forecasting is all about. This is the kind of work we do with our clients at Bigmore Associates. We show you the numbers. We give you the advice. We build your confidence around your financial decisions so you can make the most of your life, both now and in the future.

Whether you feel you have a handle on your finances or not, there is endless value to be found in working with a financial advisor. Not just in terms of numbers but in terms of your understanding and the peace of mind that you, and your family, will be okay as time goes on.

That is what we are here for. That is what we love doing. Making you feel confident in your financial decisions. If we have given you that, we have done our job well. 

"The best time to plant a tree was 20 years ago. The second best time is now."

- Chinese Proverb