The Department for Work and Pensions (DWP) has urged people to start saving for retirement, explaining that every £1 put into a pension today could be worth £4 by the time they stop working.
In a post on X, the DWP said: "Some of the best things in life take time. That includes your pension where every £1 you put in today could get you £4 in return when you retire. Have you started saving into yours?"
Pension and Guinness Comparison
The department also shared a video comparing saving for retirement to pouring a pint of Guinness, explaining that both need time to get the best results. The video said: "There's something that pensions and pouring a pint of Guinness have got in common: you've got to give them time.
"Save into your pension when you're working - your employer adds in too - and then you give it time to settle and to grow. And then it builds up over your working life for you to enjoy in retirement. So don't wait for your retirement to start thinking about your pension. Save now if you can, save a bit more if that's possible, and you'll be glad you did when it comes to retirement."
State Pension and Employer Contributions
The message comes as workers are encouraged to consider how much they are setting aside for later life, rather than relying entirely on the State Pension. Experts at MoneyHelper explained: "If you want to stop working when you're older, you'll need enough money to live on. The State Pension might cover some costs, but you'll usually need your own pension and other savings for a comfortable retirement."
The State Pension is a regular payment from the Government that people can claim once they reach State Pension age. How much someone receives depends on their National Insurance record, with the full new State Pension currently worth £241.30 a week. However, experts at MoneyHelper warn that even people receiving the full amount may struggle to cover all their retirement costs.
Under automatic enrolment rules, the minimum pension contribution is normally 8% of qualifying earnings, with at least 3% coming from the employer and the remaining 5% usually made up of employee contributions and tax relief. Some employers offer to match higher contributions, meaning workers who choose to save more could also receive extra money from their employer.
Tax Relief and Investment Growth
Pension contributions can also benefit from tax relief, which helps boost the amount being saved. For example, a basic-rate taxpayer who pays £80 into a pension can have this topped up to £100 through tax relief. The money in a defined contribution pension is then invested, giving it the chance to grow over time. However, investment values can also fall, so the amount people receive is not guaranteed.
Experts at MoneyHelper give an example of how much difference starting earlier could make, although the figures are estimates rather than guaranteed amounts. If someone and their employer save a combined £200 into a defined contribution pension every month, their pot could be worth around £316,000 by age 65 if they start at 20. However, someone starting at 30 could have around £224,000, while starting at 40 could leave them with £146,000. Those waiting until 50 could have around £80,000 by the same age, according to the example.
People can usually start accessing their private pension savings from age 55, although this will rise to 57 from April 2028. They can also normally take up to 25% of their pension as tax-free cash, up to a maximum of £268,275 for most people, although doing so could reduce their retirement income. Anyone who has not yet started saving can ask their employer about joining a workplace pension or consider setting up a personal pension.
