Why pensions matter
A pension is a long-term savings vehicle with two powerful advantages: tax relief on contributions (at your marginal income tax rate) and employer contributions in workplace schemes. Together these make pensions one of the most efficient ways to build wealth available to most UK workers.
Workplace pensions and auto-enrolment
Since 2012, most employees are automatically enrolled in a workplace pension when they start a job. Under minimum rules, employees contribute at least 5% of qualifying earnings (including 1% tax relief) and employers contribute at least 3%. The employer contribution is effectively free money — contributing enough to receive the full employer match should be a high financial priority.
The state pension
The new state pension requires 35 qualifying years of National Insurance contributions for the full amount. You can check your state pension forecast via the government gateway website, and you can make voluntary Class 3 NI contributions to fill gaps in your record.
Self-Invested Personal Pensions (SIPPs)
A SIPP is a personal pension that gives you greater control over where your money is invested. It is suitable for self-employed people without access to a workplace pension, people who want to consolidate multiple old workplace pensions, and higher-rate taxpayers who want additional pension contributions. Tax relief is added automatically at the basic rate; higher-rate taxpayers claim the additional relief via self-assessment.