Pension Strategies Throughout Your Life
As an independent financial adviser, I’ve helped clients at every stage of their pension journey. What’s become clear is that effective pension planning isn’t a one-size-fits-all approach—it evolves as you move through different life stages. In this guide, I’ll share tailored strategies for people at each major stage of their pension journey in the UK.
By Yash Tosar (Pension Specialist)
For Young Professionals (20s-30s)
Embrace Auto-Enrolment (But Don’t Stop There)
If you’re employed, you’re likely already enrolled in your workplace pension scheme. This is an excellent foundation, but consider it your starting point, not the finish line. The current minimum contribution (8% total, with 3% from your employer) may not be enough for a comfortable retirement.
Action Step: Increase your contributions beyond the minimum whenever possible. Even 1-2% more can make a significant difference over decades.
Leverage Time and Compound Growth
The greatest asset you have is time. Starting early means your money has longer to grow, and the power of compound returns is truly remarkable.
For context, £100 per month invested from age 25 could potentially grow to around £190,000 by age 65 (assuming 5% annual growth after inflation). Wait until 35 to start, and you might only reach about £110,000.
Action Step: Prioritise pension contributions now, even when retirement seems impossibly distant.
Consider a SIPP for Flexibility
While workplace pensions are valuable, a Self-Invested Personal Pension (SIPP) offers greater investment choice and control. This can complement your workplace scheme, especially if you’re self-employed or want more investment options.
Action Step: Research low-cost SIPP providers and consider splitting your pension savings between your workplace scheme and a SIPP.
Take Appropriate Risk
In your 20s and 30s, you can generally afford to take more investment risk because you have time to weather market fluctuations.
Action Step: Check your pension’s investment strategy. Many young people remain in default funds, which might be too conservative for their time horizon.
For Established Professionals (30s-40s)
Balance Competing Financial Priorities
This is often the stage when financial pressures peak—perhaps you’re managing a mortgage, raising children, and possibly still paying off student loans.
Action Step: Don’t neglect your pension amid these pressures. Even if you can’t maximise contributions now, maintain at least enough to get your full employer match.
Review Your Retirement Goals
By now, you should have a clearer picture of your long-term financial aspirations.
Action Step: Calculate how much income you’ll need in retirement and whether your current contributions will get you there. Use online pension calculators or consult with an adviser to identify any potential shortfall.
Consider Salary Sacrifice
If your employer offers it, salary sacrifice can be an efficient way to boost pension contributions as both you and your employer save on National Insurance contributions.
Action Step: Speak with your HR department about salary sacrifice options and how they might benefit your specific tax situation.
Review Your Investment Strategy
Your pension may have started with a default investment strategy that doesn’t align with your goals or risk tolerance.
Action Step: Review your pension’s asset allocation. You still have 20-30 years before retirement, so your portfolio should likely maintain significant growth-oriented investments, albeit perhaps with slightly less risk than in your 20s.
Protection Planning
While not directly pension-related, this is a crucial time to ensure your family is protected should anything happen to you.
Action Step: Review your life insurance, critical illness cover, and income protection, particularly if others depend on your income.
For Mid-Career Professionals (40s-50s)
Pension Catch-Up
If you’ve fallen behind on your pension savings, your 40s are a critical time to catch up.
Action Step: Consider making additional voluntary contributions to close any projected shortfall. This might mean diverting bonuses to your pension or increasing your regular contributions.
Begin to Consider Your Retirement Timing
While retirement might still be 15-20 years away, now is the time to start thinking about when you might want to retire and whether phased retirement could be an option.
Action Step: Create a rough timeline for your retirement transition and adjust your pension strategy accordingly.
Explore Carry Forward
If you can afford to make substantial pension contributions, you might be able to use unused allowances from previous years.
Action Step: Check if you have unused pension annual allowance from the previous three tax years that you could potentially utilise.
Assess Your State Pension Position
Your State Pension will form an important part of your retirement income.
Action Step: Check your National Insurance record on gov.uk and consider making voluntary contributions to fill any gaps in your record.
Begin Portfolio Rebalancing
While you shouldn’t be too conservative yet, this is the time to start considering how your investment strategy will gradually transition.
Action Step: Review your pension investments with an eye toward beginning a very gradual shift from growth to income-focused assets over the coming decade.
For Pre-Retirees (50s-60s)
Review Your Pension Forecast
As retirement approaches, it’s crucial to know exactly where you stand.
Action Step: Request pension forecasts from all providers, check your State Pension forecast on gov.uk, and consolidate this information to understand your expected retirement income.
Consider Pension Consolidation
Over a career, many people accumulate multiple pension pots. Consolidating them can simplify management and potentially reduce fees.
Action Step: List all your pension pots and evaluate whether consolidation makes sense. Be careful with defined benefit schemes, which often provide valuable guaranteed benefits.
Adjust Your Risk Profile
As retirement nears, you typically want to reduce (but not eliminate) investment risk.
Action Step: Implement a gradual de-risking strategy over 5-10 years before retirement. This doesn’t mean switching entirely to cash, you’ll likely need growth assets even in retirement.
Maximise Contributions
The years before retirement are often your highest-earning period and may present your final opportunity to boost your pension significantly.
Action Step: Consider making additional voluntary contributions, especially if you have unused annual allowance from previous years (pension carry forward rules allow you to use allowances from up to three previous tax years).
Plan Your Retirement Income Strategy
With pension freedoms, you have more options than ever for accessing your pension.
Action Step: Begin considering whether an annuity, drawdown, lump sums, or a combination will best meet your needs. This decision doesn’t need to be finalised yet, but start exploring the options.
Important Tax Considerations at Any Age
Annual Allowance
Remember that pension contributions are generally limited to £60,000 per year (as of 2024/25) or 100% of your earnings, whichever is lower. Higher earners may have a reduced allowance.
Lifetime Allowance
While the Lifetime Allowance charge was abolished in April 2023, there’s still a Lump Sum Allowance of £268,275 beyond which you’ll pay income tax on lump sums.
Tax Relief
Don’t forget that pension contributions receive tax relief at your marginal rate. For higher and additional rate taxpayers, this is a significant benefit that shouldn’t be overlooked.
Final Thoughts
Whatever stage you’re at, regular pension reviews are essential. I generally recommend a comprehensive review at least every two years for younger savers and annually for those within ten years of retirement.
Remember that pension planning isn’t just about the numbers—it’s about creating the future lifestyle you want. By taking appropriate action at each life stage, you’re setting yourself up for a retirement that offers both financial security and the freedom to enjoy your later years.
This article provides general information only and does not constitute financial advice. For personalised guidance based on your specific circumstances, please contact our office to arrange a consultation. Learn more
