Workplace Pension: Are You Saving Enough?

I was 28 when I first logged into my workplace pension and actually looked at the numbers. I had been paying the minimum 5% for six years. My employer was putting in their 3%. I assumed that was fine because, well, that was what everybody did.

Then I ran a projection. At 5% contributions on my salary, with average growth, I was on track for a pension pot of about £180,000 by 65. That sounds like a lot until you realise it buys you an income of roughly £7,000 a year. Seven grand. That is not retirement. That is surviving.

That was the moment I stopped treating my pension as someone else’s problem. If you have not logged into yours recently, do it today. The number might surprise you, and probably not in a good way.

How auto enrolment works

Since 2012, every UK employer has been required to automatically enrol eligible workers into a workplace pension. If you are aged between 22 and state pension age, and earn more than £10,000 a year, your employer must enrol you and contribute to your pension.

The minimum total contribution is 8% of your qualifying earnings:

5% from you (the employee)
3% from your employer

Your employer cannot contribute less than 3%. Some employers are more generous and will match higher contributions, but 3% is the legal minimum. If your employer offers to match more, take it. It is free money sitting on the table.

Here is what most people miss. That 8% is calculated on your “qualifying earnings”, which is the portion of your salary between £6,240 and £50,270. So if you earn £30,000, you are not saving 8% of £30,000. You are saving 8% of £23,760. That works out to about £1,900 a year. For a comfortable retirement, that is nowhere near enough.

Why the minimum will leave you short

The Pensions and Lifetime Savings Association estimates you need a pension pot of around £370,000 to achieve a “moderate” retirement lifestyle. That is not luxury. That is being able to afford a decent holiday each year, run a car, and eat out occasionally.

At the minimum 8% contribution on an average salary, most people will fall well short of that target. The auto enrolment minimums were set to get people started, not to get people to the finish line. They are a floor, not a ceiling.

I learned this the hard way. If you are in your 20s or early 30s, time is on your side. But if you are relying on the minimum contribution, you are building towards a retirement that looks far more restrictive than you would want.

The 1% trick that barely hurts

Every year, increase your pension contribution by just 1%. Most people do not even notice the difference in their take-home pay, especially if it coincides with a pay rise.

Going from 5% to 6% on a £30,000 salary costs you roughly £20 a month after tax relief. That is less than a Netflix subscription and a couple of coffees. But compounded over 30 years, that extra 1% can add tens of thousands to your pension pot.

I did this every year until I hit 15%. By the time I got there, my lifestyle had adjusted at each step and I never felt the pinch. The difference between someone at 5% for their whole career and someone who climbs to 12% or 15% is staggering. We are talking hundreds of thousands of pounds.

Salary sacrifice: the tax benefit most people ignore

When I discovered salary sacrifice, I was genuinely annoyed nobody had told me about it sooner.

If your employer offers salary sacrifice for pension contributions, use it. With salary sacrifice, your gross salary is reduced and the difference goes straight into your pension. Because the contribution comes out before tax and National Insurance are calculated, you save on both.

For a basic rate taxpayer, every £100 you sacrifice costs you roughly £68 in lost take-home pay. For a higher rate taxpayer, it is even less. Compare that to a normal pension contribution where you get tax relief but still pay National Insurance on the full amount. Salary sacrifice saves you the NI as well.

Over a career, that difference adds up to thousands. I calculated mine once and the NI saving alone was worth over £800 a year. That is £800 of extra pension contributions that cost me nothing.

Not every employer offers it, so check with your HR department. If they do, it is almost always worth switching.

Your pension IS investing

This took me far too long to understand. Your pension is not a savings account. The money does not just sit there. It is invested, typically in a mix of shares, bonds, and other assets.

Most workplace pensions put your money into a default fund, usually a “lifestyle” or “target date” fund. These start with a higher proportion of shares when you are young and gradually shift to bonds and cash as you approach retirement.

Default funds are fine for most people, but they are designed to be safe and inoffensive, not optimal. If you are decades from retirement, you might want a higher allocation to global equities than the default provides. The long-term returns on equities have historically been significantly higher than bonds or cash.

You do not need to become a stock picker. Just log into your pension provider’s website and look at what your money is actually invested in. If you want more control, a SIPP gives you that flexibility alongside your workplace pension.

Check the fees

Fees are the silent killer of pension wealth. A difference of just 0.5% in annual fees can cost you tens of thousands of pounds over a 30-year career.

Workplace pension fees are capped at 0.75% for auto enrolment default funds, but many providers charge less. Some charge as little as 0.1% to 0.2% for index tracker funds. Others bury higher fees in actively managed funds that rarely outperform their cheaper alternatives.

Log in. Find the fee section. If you are paying more than 0.5% and you are in a standard default fund, it is worth questioning whether your money could work harder elsewhere. I switched from a managed fund charging 0.6% to an index tracker at 0.15% and the projected difference over 20 years was over £40,000. Same pension, same contributions, just lower fees.

Consolidating old pensions

If you have worked for multiple employers, there is a good chance you have pension pots scattered across different providers. I meet people regularly who have four or five old workplace pensions and cannot remember the login details for any of them.

Consolidating into one place makes your retirement planning simpler. You can see your total pot in one dashboard, pay one set of fees, and make sure everything is invested to match your goals.

You can transfer old workplace pensions into your current scheme (if it allows it) or into a SIPP. Before transferring, check for any exit fees, guaranteed annuity rates, or other benefits you might lose. For defined contribution pensions, transferring is usually straightforward. For defined benefit (final salary) pensions, get professional advice first. These are often too valuable to transfer.

The government’s pension tracing service can help you find lost pensions. It is free and takes a few minutes.

The lifetime allowance is gone

For years, the lifetime allowance capped how much you could hold in pensions before facing a tax charge. It peaked at £1.8 million, dropped to £1 million, then bounced around before being abolished entirely in April 2024.

This is genuinely good news. There is now no upper limit on how much you can build in your pension without a lifetime allowance charge. The annual allowance still limits contributions each year (currently £60,000 or 100% of your earnings, whichever is lower), but the removal of the lifetime cap means aggressive savers are no longer penalised for building a large pot.

If you were holding back on pension contributions because of the lifetime allowance, that barrier is gone. For most people on average salaries this was never a concern, but it is one less thing to worry about.

What to do this week

Here is a checklist. It will take you less than an hour and could change the trajectory of your retirement.

Log into your workplace pension. Look at how much is in there, what it is invested in, and what fees you are paying.
Check your contribution rate. If you are at the minimum 5%, increase it to 6% today. You will barely notice the difference.
Ask about salary sacrifice. If your employer offers it and you are not using it, you are leaving money on the table.
Find your old pensions. Use the pension tracing service or dig out old paperwork. Consider consolidating them.
Understand your State Pension entitlement. Check your National Insurance record on the government website. You need 35 qualifying years for the full State Pension.

Nobody talks about their pension at the pub. But for most people, it will be the difference between a retirement spent doing what you want and a retirement spent worrying about money. I retired at 40 because I took this stuff seriously early enough. You do not have to aim for that. But you do have to aim for something better than £7,000 a year.