Money paid into a pension in your twenties and thirties has decades to grow; money paid in during your fifties has far less time.
What a pension is
A pension is a pot of money with three features a savings account doesn't have: your employer pays into it, the government gives you tax relief, and it is invested for decades. In return, you cannot take it until later. Opting out means giving up your employer's contribution and the tax relief.
Employer contributions
Through auto-enrolment, most employees are automatically put into a workplace pension. The legal minimum going in is 8% of your qualifying earnings — the slice of pay between £6,240 and £50,270 in 2026-27 — and at least 3% of that must come from your employer. If you opt out, you also lose your employer's contribution.
Some employers match extra contributions — pay in 5% and they'll pay 5%, say, instead of the minimum. HR can tell you your scheme's matching policy, and our payslip guide shows you where the contributions appear.
Tax relief
Pension contributions get tax relief, which means a £100 contribution costs a basic-rate taxpayer £80 — the government tops up the difference. For a higher-rate taxpayer the real cost is £60, though depending on how your scheme collects contributions, the extra relief is sometimes automatic and sometimes has to be claimed through Self Assessment. Check which applies to you, because higher-rate relief that has to be claimed is not paid until you claim it.
£80what £100 in a pension costs a basic-rate taxpayer after tax relief (£60 for higher-rate)
The annual allowance lets most people get tax relief on up to £60,000 of pension contributions a year (or 100% of earnings if that's lower).
What it adds up to
Illustrative figures, 2026-27. Take someone earning £32,000 in a scheme paying the auto-enrolment minimum. Qualifying earnings are £32,000 − £6,240 = £25,760, so 8% means about £2,060 a year going into the pot.
- Employer's share (3%): about £773.
- Employee's share (5%): about £1,288 — but roughly £258 of that is basic-rate tax relief added by the government.
- Real cost to the saver: about £1,030 a year, or £86 a month.
So the pot gains £2,060 while the saver gives up £1,030 — every £1 in the pension cost about 50p.
The State Pension
The full new State Pension is £241.30 a week in 2026-27 — about £12,550 a year — and you generally need around 35 qualifying years of National Insurance to get the full amount (and at least 10 to get anything). It starts later than many people expect: State Pension age is currently rising from 66 to 67, completing in 2028.
Check your State Pension forecast on GOV.UK; it shows your qualifying years and any gaps, which voluntary National Insurance contributions can sometimes fill.
Why time matters
Money paid in at 25 has forty years to grow; the same money paid in at 55 has ten. Growth compounds, so the later years add the most.
Illustrative figures only — assuming 5% a year growth after charges, purely to show the shape. Real returns vary and aren't guaranteed.
- £1,200 a year for 40 years: £48,000 contributed grows to roughly £145,000.
- £1,200 a year for 10 years: £12,000 contributed grows to roughly £15,000.
Four times the money went in, and the pot is nearly ten times bigger; the difference is time.
Gaps and lost pots
Two things reduce pensions. The first is gap years in your National Insurance record — career breaks, time abroad, low-earning years and, most commonly, parents at home who don't realise a Child Benefit claim protects their State Pension credits even when the payment itself is tapered away. If that might be you, read our Child Benefit guide.
The second is lost pots. Each job change since auto-enrolment began may have left a small pension behind, attached to an old address. Finding them is free, using the checks below.
Annual pension check
Six checks to do once, then every year:
- Confirm you're in the scheme. Check a payslip for pension contributions. If you opted out, HR can tell you how to rejoin.
- Find your percentages. What do you pay, what does your employer pay, and does your employer offer matching?
- Get your State Pension forecast at gov.uk/check-state-pension and note any gap years.
- Track down old pots from previous jobs with the free Pension Tracing Service.
- Check your beneficiary nomination — the form saying who gets the pension if you die. It sits outside your will and goes stale after divorces and new partners; our wills and financial admin guide explains why this matters.
- Diarise it. Put the same month in your diary each year.
Where coaching ends and advice begins. Understanding your pension, your scheme membership, any matching and your forecast is coaching. But choosing the investments inside a pension, consolidating old pots, transferring a defined-benefit (final salary) pension, or deciding how to draw an income in retirement are regulated decisions with real, sometimes irreversible consequences. For those, use a qualified adviser. Buzz Money Coach does not give regulated advice. Where you need it, we say so and can introduce you to Equity & General, authorised and regulated by the FCA (No. 474163), through Buzz Money Ltd's introducer agreement. The introduction is optional. And if you're over 50 with a defined-contribution pension, the government's free Pension Wise guidance service is a free first stop.
To work out a retirement date, read when can you retire? next.