Stay Calm and Keep Investing: Essential Strategies to Safeguard Your Pension During Uncertain Times

Avoid Early Withdrawal from Pension Plans

Every employer is required to enroll their employees into a workplace pension scheme if they are a UK resident, aged between 22 and the state pension age, and earn above £10,000 annually, £192 weekly, or £822 monthly, as of the 2025/26 tax year.

A minimum of 8% must be contributed to the pension scheme, although not all of this comes from the employee since employers contribute a portion and tax relief adds to your contribution.

While enrollment into the pension scheme is automatic, you have the option to opt out. This might seem appealing, especially if you’re earning a lower wage, but opting out means you lose free contributions from your employer and tax advantages, as well as potential investment growth.

“Starting early is key,” advises Mark Smith from Pension Attention, a campaign led by the industry. Opting out means missing out on stock market growth until you’re enrolled again in three years. Smith suggests setting a reminder to reassess your financial situation in a year, but ideally, try to start contributing immediately if possible.

Juggling Financial Priorities

When starting your career, you might have financial goals that take precedence over retirement planning, such as saving for a house. A study by L&G showed that a significant number of new and prospective homeowners have had to delay or reduce their pension contributions to save for a home.

“Younger individuals often face tough choices between saving for a deposit and contributing to a pension due to rising living costs,” says Katharine Photiou from L&G Retail. While these decisions are understandable, they can negatively impact long-term retirement savings.

For those saving for a home, a lifetime individual savings account (Lisa) may be beneficial. You can contribute up to £4,000 annually, which can be used towards buying a home or for retirement, with a 25% bonus from the government added each year until you are 50. Withdrawals from Lisas for other purposes before age 60 incur a 25% charge, but they are tax-free if used for approved purposes.

Increase Contributions When Possible

If you receive a raise, consider increasing your pension contributions before you get used to the extra disposable income. “See if your employer will match an increase in your contribution. It’s a tax-efficient method for them to increase your compensation,” suggests Smith. Even a small increase can significantly impact your pension due to tax relief and the power of compounding.

For instance, a 22-year-old earning £25,000 annually and contributing the minimum to a pension could see their savings grow from £155,000 to £194,000 by retirement by just increasing their contribution by 1%.

Strategies for Parental Leave

“Continuing your pension contributions during maternity leave is crucial if you can afford it,” suggests Helen Morrissey from Hargreaves Lansdown. While your contributions might decrease with reduced pay, your employer should keep contributing based on your full salary for the first 39 weeks. Contributions remain unchanged under salary sacrifice schemes since they are considered employer contributions.

If you don’t receive maternity pay, your employer is still required to make contributions during the first 26 weeks of ordinary maternity leave, with further contributions dependent on your contract.

Keep an Eye on Your Pension if Unemployed

Unemployment halts your contributions to workplace pensions, but your investments continue to grow. Morrissey advises ensuring you claim all benefits entitled to you, as many include national insurance credits that contribute towards your state pension eligibility.

“Resume contributing to your pension as soon as you start earning again to stay on track,” adds Photiou.

Self-managed Pension Options

For the self-employed, a stakeholder pension, which requires a minimum monthly contribution of £20 and has capped annual charges, is a straightforward option. While starting with small amounts is better than not saving at all, higher contributions significantly increase the potential retirement fund.

Funds in a stakeholder pension are locked until retirement, but a lifetime Isa also allows flexible access to funds, making it another viable option for the self-employed.

Maintain Oversight of Multiple Pension Pots

As you move through different jobs, you might accumulate several pension pots. “You have options to leave your pension as is, transfer it to your new employer’s scheme, or consolidate them into a personal pension,” Morrissey explains. However, she cautions to check for any potential exit fees or loss of benefits, such as guaranteed annuity rates, before consolidating.

Defined benefit pensions, which are based on your earnings and guaranteed, should generally not be moved. For guidance on transferring or consolidating pensions, consult the MoneyHelper website or seek independent financial advice, available through resources like the Unbiased website.

If you’ve lost track of old pensions, the government’s Pension Tracing Service can help locate them with the names of past employers or pension providers.

Remain Invested for Growth

From age 55 (57 from April 2028), up to 25% of your pension can be withdrawn tax-free. However, Smith warns against early withdrawals due to significant tax implications and loss of future growth potential. He strongly advises seeking professional advice before making such decisions, noting that while costly, it can prevent costly mistakes. Free guidance is also available through Pension Wise for those over 50.