Just starting work? Should you start saving for your pension too?

Have you just started your first job? If you’re 22 or over and earning more than £10,000 a year, your employer should automatically put you into their workplace pension scheme. This is called ‘auto enrolment’.

The government set up auto enrolment a few years ago to help people save for their retirement, as a lot of people didn’t have much money saved in a pension apart from their State Pension. Since auto enrolment was introduced, more than 10.5 million people in the UK have started saving into a workplace pension with their employer’s help.

But when you’re starting out, retirement seems a very long way off. Is it really worth staying in your pension? Here are some key questions to help you weigh up the pros and cons:

How do I juggle paying for a pension with my other financial commitments?
Of course, it’s hard to think about paying into a pension when you’re paying back a student loan, trying to tackle credit card debt or saving for a deposit for your first home.

It’s worth taking the time to sit down and list all the regular expenses you pay out, compared to the money you have coming in. There are loads of handy apps – and digital bank accounts such as Monzo and Starling – to help you do this. You can then work out what difference paying into a pension will make to your income. Even contributing small amounts can make a difference.

How much comes out of my salary?
You’ll need to pay in at least 5% of your earnings, while your employer tops that up by 3% to make a total of 8%. (This is the minimum level. Your employer may pay in more or offer you the chance to pay in more. They’ll be able to tell you.)

If you’re a taxpayer, you also benefit from ‘tax relief’. This means some of the money you’d have paid in tax goes into your pension savings instead. That’s extra money in your pension savings! Our short video explains how auto enrolment works.

What are the long-term benefits?
Quite simply, the more you save now, the more savings you’ll build up over your working life to help support you when you want to work less or retire.

What happens if I don’t want to join?
When your employer automatically enrols you in their pension, you can choose to ‘opt out’. As long as you opt out within one month of being enrolled, you’ll get a refund of the contributions you’ve paid.

You can also choose to leave the pension at any time, although if you leave after the first month you won’t get a refund of your contributions. Your pension savings will stay invested until you start to take your retirement benefits or transfer your savings to another provider.

However, if you opt out or leave you won’t build up any pension savings or benefit from your employer’s contributions or tax relief. Is it worth it?

Do I get to choose how my savings are invested?
It depends what scheme your employer has chosen to auto enrol you in. All auto enrolment pension providers must offer a ‘default’ investment option which you go into if you don’t make another choice, and some providers offer a range of other options.

Our Scheme has one investment option carefully designed to give you good outcomes with your pension savings.

I want my savings to be invested in a way that helps the planet. How does responsible investing work?
Again, this depends on the pension provider your employer has chosen to use. Many providers now offer opportunities to invest in ways that aim to grow your savings while benefiting society and the environment.

By the end of 2021, over half the investments in our Scheme will be in line with environmental, social and governance (ESG) principles.

It’s too early for me to start saving now, but does that mean I miss the boat?
It’s never too early, thanks to the miracle of compound interest. This means the earlier you start saving, the more you build up. If you start saving into your pension when you’re 22, you’ll benefit from compound interest for 20 more years than someone who started saving at 42 – and that can make a big difference.

If it’s really too much for you now, the good thing about auto enrolment is that your employer has to re- enrol you every three years if you remain eligible, and you’ll probably be enrolled in a pension with many of the jobs you have throughout your working life (as long as you’re over 22 and earning more than £10,000). So you can pick up pension saving when it suits you better. Even if you’re older, it’s still never too late to start saving. Your future self will thank you!

I work part-time and earn less than £10,000. Can I still save in a pension?
Yes. You can ask your employer to put you into their pension scheme so you can contribute. Your employee’s not obliged to contribute (although many employers will if you ask them to). Our Scheme is set up so that employers contribute even if they’re not obliged to.

We’re also campaigning for the government to remove the £10,000 earnings threshold for auto enrolment, so pension saving starts with the first pound you earn.

I’m not planning to stay very long with my current employer. What happens if I change jobs?
Most workplace pension providers let you move your pension savings into a scheme with another employer. Combining your savings in one place can reduce the amount of charges you pay and cut down on paperwork. But transferring pensions is a big decision, so it’s worth getting help from a regulated independent financial adviser. You can find out more about transferring your pension on the government’s independent MoneyHelper website. 

How do I know how much I’ve saved?
Each year, every pension provider you have savings with will send you an annual benefit statement – either by email or in the post. This simple statement will tell you what you’ve paid in that year, what your employer has paid in, and what your pension savings with them are worth. It’s worth taking the time to check your statement(s) each year to keep track of all your savings as you build up different pension pots.  

We understand it’s hard to get your head around saving for something that’s so far off, but paying in even small amounts can help get your pension saving journey started. Our short video on getting to grips with pension basics can help.