Whisper it: pensions are cool in your 20s and 30s

So why even think about your pension now? Ask Dumbo about acorns… 

Pensions are like oak trees and elephants. For the best chance to get big and strong, they need plenty of time to grow. You can’t lead a herd, support a tree house, or provide a decent income if you’re weedy. And growth isn’t something you can rush.   

That’s where you have the advantage. Time is on your side and you won’t believe the difference it can make – even if you start by only paying in small amounts!  

Time is the secret ingredient 

£100 saved in your 20s could go further than £200 saved in your 40s… if it’s in a pension. 

Now, the following is a simplified illustration, and investments can go down as well as up, but the earlier you start saving in a pension, the longer your money is invested. And the longer your money is invested, the more it could potentially grow.   

Let’s compare two simple examples… 

Erica started saving at age 25 

• She saves £100 a month until she turns 65

• That’s £48,000 in total over 40 years

• In a pension, that could grow to £153,238*

Craig started saving at age 45 

• He saves £200 a month until he turns 65

• That’s £48,000 in total over 20 years

• In a pension, that could grow to £82,549*

Even though Erica and Craig put the same amount of money into their pension pots in total, Erica ended up with a heck of a lot more because she started saving earlier.  

Pensions make every pound go much further 

Workplace pensions usually come with the most benefits and are easy to manage because you pay in through work, so let’s focus on them. 

• Tax relief – you don’t pay tax on the money you save into a pension, so every £1 only costs you 80p (or 60p if you’re a higher rate taxpayer)

• Employer contributions – if you pay at least 5% of your salary into your pension, your employer will pay at least 3% on top (as long as you’re over 22 and earn over £10,000)

• Investment growth – the money you save into a pension is invested, giving it a chance to grow over time (you could also get out less than you put in)

There are also some limits to keep in mind.  

You can usually save up to 100% of your salary (up to £60,000) into your pension each year, tax free. But this ‘tax-free allowance’ reduces if you earn over £100,000. 

Taking full advantage of your allowance can help build a healthy financial future. But be aware that allowances and pension rules do change sometimes, when the government tinkers with tax law.  

Most importantly, money saved in a pension is locked away until you turn 55 (57 from April 2028). 

How to make the most of your early start 

If you’re keen to squeeze as much as you can out of employer contributions and tax relief, you could increase your monthly contributions to your pension.  

But… only ever save what you can afford to. And perhaps think about keeping some easy-access cash or ISA savings as well so you’re not caught short. We can help with that, too. 

If you’re unsure about managing your money or what to prioritise, the people to speak to our independent financial advisers. We can only offer general tips and guidance. 

Any other good ways to save for the long term? 

Lifetime ISA (LISA) is another account that helps you save for later life, but it can also be used towards your first home. Read up on LISA benefits and rules to see if it suits you. 

Here’s to a feel good future! 

Remember, there’s no rush to make decisions with your money. But the earlier you start saving, the better chance you’ll have to afford the life you want in the future. Bring on the fun and freedom! 

*Savings examples are meant for illustrative purposes only. We’ve assumed 5% investment growth each year, which would likely vary in real life. And most people would pay more than this into a pension each month, especially with employer contributions on top. Investments can go down as well as up in value, and fees could also affect the total. 

The value of your investments can go down as well as up, which means you may get less back than you put in. We do not provide financial advice. 

Cushon Group Limited is registered in England and Wales with company number 10967805. Registered office: 250 Bishopsgate, London, EC2M 4AA. Cushon Money Limited is authorised and regulated by the Financial Conduct Authority with FRN 929465 and is registered in England and Wales with company number 11112120.  

Cushon Master Trust is regulated by The Pensions Regulator with PSR number 12008536. Cushon MT Limited is the sponsoring company of Cushon Master Trust and is registered in England and Wales with company number 12366412. 

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NatWest Cushon