One Aunt's Advice Put a Teen Into His Workplace Pension
Joining a pension at 18 can look like a bad deal until someone does the sums. For Rio, a 20-year-old in Scotland, those sums turned £83 a month of his own money into £312 going into his pension.
From "too expensive" to £8,000
Rio started work at 18, too young to be auto-enrolled in his company's scheme. He was offered the chance to join and said no, because it felt too expensive. His aunt, Susan Hope, works as a pensions expert at Scottish Widows and specialises in workplace schemes.
He left school and became a technical trainee in September 2024. Hope says that the following month he told her he would not join, because his 5% contribution of £83 a month seemed too much. After a long conversation about the benefits, he changed his mind.
Nearly two years on, he has paid about £2,000 of his own money and has £8,000 in his fund.
How £83 became £312
Under auto-enrolment, employers have had to put eligible workers into a workplace scheme since 2012. The minimum total contribution is 8%, usually made up of 4% from the worker, 1% in tax relief and 3% from the employer. It normally starts at 22 for people who earn more than £10,000 a year.
Rio's employer is more generous. If he paid in 5% of his earnings, the company would put in 10%. Hope worked out that with the employer contribution and tax relief, his £83 became £312 a month. That is an extra £229 a month toward his future.
Why starting early matters
Workers can opt into a workplace scheme from the age of 16 without waiting for the automatic start date. The government says every £1 saved in a person's early 20s could be worth £9 by retirement, counting tax relief and employer contributions, though most of that comes from investment growth.
Hope estimates that the four extra years of saving before Rio's auto-enrolment at 22 could leave him with an extra £110,000 after 40 years, assuming 5% investment growth. "We need to have these conversations with our families and friends early," she says.
Rio says he is pleased he had that chat. His first annual statement came as a good surprise, and the pension now sits in an app where he can watch the value rise.
Pension questions people avoid
A PensionBee survey found that 49% of savers had avoided asking a pension question because they thought it was too basic. Asked what they were least sure about, 22% named how much they would have at retirement and 19% how much they needed to save. Only 13% called themselves very sure of how their pension works.
PensionBee said people worried about looking uninformed may be missing information they need for better retirement decisions. Becky O'Connor, its head of pensions, said people should push past the embarrassment and ask rather than stay without answers.
Source: the Guardian