Is It Too Late To Save Into A Pension?

I was asked by someone on Linked In whether it was too late for them to save into a pension at their “ripe old age”. 

Naturally, the earlier you start the better. The combination of decades of contributions from you, and potentially, an employer plus the majesty of compound interest, will generate a substantial pension pot to live off when you come to retire. 

But there may be many reasons why your pension planning has been overlooked:

• Maybe you never understood them so didn’t set one up,
• Maybe your Dad didn’t believe in them so advised you against them (yes, that happens),
• Maybe you have spent most of your working life has a carer so never had the means to save into a pension, 
• Maybe you have been divorced and lost a large chunk of your pension in the settlement and feel like you are starting again.
• Maybe your earnings have always been such that life’s day-to-day costs have used up any disposable income you had.
• Maybe you felt property investing was your ‘pension’.
• Maybe you always intended to but life got in the way. All of a sudden retirement is looming large on the horizon and you feel unequipped. 

Whatever the reason, we can’t change the past so we have to work with what we have. But is it worth saving into a pension if you are nearing retirement?

The short answer is “yes”. Here is why:

1. It’s better to save something than nothing. 
2. There is an immediate tax benefit. For anyone under 75, HMRC provides basic rate tax relief of 20% on contributions up to the lower of 100% of your earnings and £60,000. That means, for every £100 contributed to a pension you only have to contribute £80 yourself. 
3. It’s even better for higher-rate taxpayers who can reclaim the additional 20% tax. 
4. If you are employed your employer is obliged to make a contribution too. They may even match the payments you make. 
5. If you are a director of a company you can make employer contributions to your own pension. This is a very tax-efficient way to get money out of a company because pension contributions are treated as a cost of the business so reduce corporation tax and there is no tax liability on you as the individual. 
6. If you are over age 55 (58 from 2027), you will have access to the pension so don’t have to be concerned with it being locked away without access. 
7. You may be able to ‘carry forward’ unused allowances from the previous three tax years to the current tax year. This provides an immediate boost to your pension savings. 
8. Pension funds don’t form part of an estate from an inheritance tax perspective. So, if you have other wealth that would create an IHT liability on your death, the pension can be passed to anyone you wish on your death without IHT (note, that income tax may be liable on the recipient if you die after age 75).

So, whatever your age, it’s never too late to set up a pension. 

This savings calculator can help you work out how much you need to contribute to build up a pension pot of a particular size. And this article helps you work out how big your pension pot needs to be to fund your ideal lifestyle.