Why You Should Start Saving Into Your Pension Early

June 9, 2021

Here’s the thing. We know you all know how important pensions are. We’ve written about it before on this blog. Lots of other clever people are talking about it. So, we know that it’s something that many people, even young people, are very aware of.

However, we’ve had a few enquiries recently from people in their early twenties. This is obviously a really positive thing. It’s great to see people even at the very start of their careers thinking about their retirement and taking concrete steps towards building their own retirement pots.

So, we thought we’d take some time in this blog to cover over some of the aspects of saving for a pension from a young age. Read on to get our top tips!

How much should I be saving?

Of course, when you’re nearer to retirement, it can often be a bit easier to figure out how much you’ll need to actually retire. You’ve got a better picture of your lifestyle, you understand your own finances in terms of property etc., and you’ll likely already have at least some money in a pot. Then, you can just work out how much you need to add to that pot to get to your retirement goals. The challenge then is in having enough time to top the coffers up enough to reach those goals.

But, if you’re at the very start of your career, you might not really have any firm ideas about any of these things. So, how do you figure out how much you should save?

Well, one general rule goes like this. If you divide your age by 2, you should save that percentage of your salary per year. So, if you’re 30, it’s 15%. If you’re 40, 20%. And so on. This is a good rule for most people between 30 and 50, but for people outside of that age bracket, the rule can be a bit extreme. Saving 33% of your salary for the last 2 years of your working life aged 66-67 is a bit of a tall order. Plus, only saving 10% at age 20 just might not be enough.

So, if you’re starting at 21, consider trying to save around 12.5%-16% of your annual salary each year. Then, when you get to around 35 you can try and increase this, in line with the above formula.

Now, this might sound like a massive chunk of your salary – but remember you’ll get employer contributions, plus tax relief. So, to save 12.5% in an employer matched workplace pension, you’ll only actually need to put in around 5% of your own salary, which is a common amount and should be affordable for those looking to save seriously.

Why should I start early?

The number one reason to start saving early is the compound interest. Compound interest simply refers to the way that your money grows over time – because you get interest every year, when you start adding up all that interest over a 40-year period, it’s a massive amount of growth.

For example, if you save £100 a month over 40 years, you’d think you’d have £48,000 at the end, right? But, because of the power of compound interest, you actually end up with closer to £160,000 (depending on interest rates).

Understanding the power of compound interest is so important and can really help you justify saving the money early in your career.

What about the state pension?

While historically you might have been able to rely on the state pension to provide for you in your old age, for people just starting out on the career ladder today, it’s just not feasible to expect the state pension to really provide very much at all.

Even assuming it remains at current levels, it’s just not enough to live comfortably on. The simple fact is that people entering today’s job market are going to need to have a sizeable retirement pot of their own to live on in their old age.

Plus, with the post-covid economic rebound still very much in the balance, and the public finances being in a real state, it’s possible we’ll see even more cuts to the state pension over the next few decades. This makes it even less likely that this will be a resource that’s particularly available to young people nowadays – a sad truth, but a truth nonetheless.

If you’re just starting out on your pensions journey and need a bit of a helping hand, speak to GreenSky Wealth. Our financial advisers can help you find the right products for you and help you balance your saving so it fits in with your lifestyle while still making a meaningful contribution to your retirement pot. It’s the smart thing to do. To get started, just get in touch with us today.


A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.