I didn’t start pension saving until I was 32 – here’s how I’m fixing it at 43

Millions of workers are caught in what is described as the “auto-enrolment gap”, leaving them with significantly smaller retirement pots than the generations before and after them. Around 7.5 million people in their 40s and 50s – known as Generation X – face a unique disadvantage as they are too young to have received generous defined benefit (DB) pensions, which generally started closing to new workers in the 1990s, but too old to benefit from the start of auto-enrolment. Introduced in 2012 – but rolled out gradually – auto-enrolment is a UK government scheme requiring employers to automatically put staff into a workplace pension and make regular contributions towards it. Some older millennials born between 1977 and 1983 – sometimes termed Xennials – similarly missed out, as auto-enrolment was not fully rolled out until they were in their 30s. Shorts New research from Octopus Money has revealed that more than half of those born between 1965 and 1980 say saving for a pension is a money worry for them right now – the highest of any generation. Carried out among 2,000 UK working adults in July this year, the analysis shows that Gen X took five years on average to start contributing to a pension after landing their first job, only starting to add to their pot at an average age of 27. Worryingly, more than a quarter were working for over a decade before they made their first pension contribution at all. Compare that to today’s Gen Z, who generally started working after auto-enrolment was introduced. On average, they start saving at age 22, within three years of entering the workforce. ‘It wasn’t until I was 32 that I started paying into my pension’ Melanie, 43, is the perfect example of this. She started her career, in marketing, before auto-enrolment existed, and didn’t fully grasp how much of a difference an early start to pension saving makes by retirement. Speaking to The i Paper, she said: “When I started working, nobody automatically signed you up to a pension. If you wanted one, it was on you to get a personal pension, and I didn’t really understand how those worked. “Like most 20-somethings I was thinking more about how to make rent than saving for 40 years in the future.” It wasn’t until she was 32 that she was enrolled in her employer’s pension scheme, but even then, she contributed the absolute minimum. She added: “By the time my pension was on my radar, I was saving for a wedding, then a house deposit, then maternity leave, and after that: five years of nursery fees. It wasn’t until I was out of all that, that I was really able to get going.” When she was earning around £40,000 per year in his 30s, she was contributing 5 per cent into her pension annually – which is now the minimum under auto-enrolment. But nursery fees were setting her and her husband back £1,300 per month in London. As soon as her child went to school, and knowing she didn’t have an inheritance coming her way from her parents, she realised how important it was to catch up for all the years she missed in contributions. During Covid, she stopped making contributions altogether, she said, as she was “nervous” about her financial situation at the time. For eight months, she didn’t contribute. Now, she puts 27 per cent away every month. She said: “It’s a big chunk of my income. It’s not comfortable, but it feels necessary. My husband has upped his pension contributions as well.” Although she is now putting a large amount of her salary away for retirement, she still doesn’t feel confident about how much she’ll have saved up and doesn’t think she’ll be able to retire at 60 as she originally hoped. Melanie explained: “I used to think I’d be able to retire early enough to enjoy it with enough income to pay my bills and do the odd weekend away, but realistically, starting later means I’ll probably be working for longer than I’d like, just to get to the same place.” Defined contribution vs defined benefit pensions Melanie has what is called a defined contribution pension – where the employee and the employer build a pot of money by both making regular payments that are invested in the stock market or other assets. The total minimum contribution for auto-enrolment in the UK is 8 per cent of qualifying earnings, with the employee contributing at least 5 per cent – made up of 4 per cent of pay and 1 per cent government tax relief – and at least 3 per cent from the employer. The performance of the investments determines how much the saver will have in retirement. What Melanie, and others in her generation, missed out on was a defined benefit pension – sometimes known as final salary. These guarantee a specific, secure income for life based on your salary and length of service rather than market performance. Public sector workers, so those in the NHS, civil servants, teachers, and the armed forces still get these “gold-plated” pensions – but they’re now rare in the private sector. The NHS automatically contributes a flat 23.7 per cent of your pensionable pay toward the overall scheme to back your guaranteed payout. In contrast, standard private employers are only legally required to contribute 3 per cent, as explained above, but some do give more – often matching the employee’s contribution up to a certain point. Where Melanie currently works, her employer matches her contributions up to 6 per cent. She said she will continue putting 27 per cent into her pot for the next few years, “sacrificing as much” as she can whilst leaving herself a bit of spending money. The mother-of-one, who lives in London, added: “I’m probably going to do that for the next couple of years, and then I’ll let the compounding take over. “I want to try and get it to a point where I don’t have to worry about contributing so much. So, I think of it as short-term pain for long-term gain.” Gen X are still playing catch-up Despite the vast number of people in this age category worried about how much they’ll have saved for retirement, only 30 per cent have increased their pension contributions in the last five years to close the gap, Octopus Money found. Adding to the pressure, Gen X are also among the least confident that the state pension will still exist in its current form by the time they retire, with only 49 per cent confident it will – the second lowest of any generation, behind only millennials. For a generation already playing catch-up on private pension saving, that uncertainty over the state pension compounds the sense that they feel they can’t rely on a safety net they were promised. Dan Marsh, CEO of Octopus Money, defended people who fall into this category, saying this “isn’t a story about one generation being bad with money”. He said: “Many Gen X and older millennials may have spent years working with no pension being paid in at all due to delays in auto-enrolment being introduced across the country. “On top of that, many are now stuck in the ‘sandwich generation’ supporting adult children while also helping ageing parents, leaving even less room to catch up. “Now they’re the most stretched generation in our research, the least confident about retirement, and yet among the least likely to be doing anything differently about it.” The Gen X pension rescue toolkit Track down lost pots – use the government’s free Pension Tracing Service to find old workplace schemes. Maximise employer matching – see if your employer offers a salary sacrifice or matching scheme. If you increase your contribution, many employers will voluntarily increase theirs. Claim your higher-rate tax relief – if you have moved into a higher tax bracket – 40 per cent of 45 per cent – you automatically get 20 per cent tax relief on pension contributions, but you must claim the extra 20 to 25 per cent back via a self-assessment tax return. Utilise carry forward rules – if you have extra savings or receive a lump-sum bonus, you can use unused pension allowances from the previous three tax years to make large, tax-free contributions above the current annual limit. Check your state pension forecast – check your NI record to see if you have any gaps from periods of unemployment or childcare. If you do, you can often buy voluntary class 3 NI contributions to boost your eventual state pension payout.