Pensions can feel complicated, overwhelming or something to ‘worry about later’, but the sooner you understand them, the more powerful they can be for your future. Whether you’re in your 20s just starting out, or in your 40s and juggling family and career commitments, this guide will give you the essentials.
What is a pension?
A pension is simply a way of saving for your retirement that comes with special tax benefits. Unlike a normal savings account, the government and often your employer contribute alongside you, helping your money grow faster.
Think of it as a long-term pot you can’t usually access until at least age 55 (rising to 57 in 2028), designed to give you financial security later in life.
The State Pension
In the UK, the State Pension is the basic income you’ll receive from the government when you reach State Pension age (currently 66, but rising to 67 by 2028).
To qualify, you need at least 10 years of National Insurance contributions and to receive the full amount you’ll need 35 qualifying years. As of 2025, the full State Pension is around £221 per week.
It’s a solid foundation, but for most women it’s not enough on its own – which is where workplace and private pensions come in.
Auto-enrolment: your workplace pension
Since 2012, most employers in the UK must automatically enrol eligible staff into a workplace pension scheme.
Here’s what that means in practice:
- You contribute at least 5% of your salary.
- Your employer adds at least 3%.
- The government tops up with tax relief.
That’s essentially free money added to your retirement savings every month. Unless you’re facing financial hardship, it usually makes sense not to opt out.
Women in part-time roles or earning under £10,000 may not automatically be enrolled, but you still have the right to ask to join and receive employer contributions if you earn above £6,240.
DB vs DC Pensions: what’s the difference?
Not all pensions are the same. The two main types are:
Defined Benefit (DB) pensions (often called “final salary” pensions): Your employer promises you a guaranteed income for life, usually based on your salary and years of service. These are generous and increasingly rare outside the public sector.
Defined Contribution (DC) pensions: Much more common. You, your employer, and the government contribute into a pot. The value of your pot depends on how much is paid in and how investments perform. At retirement, you decide how to use it (e.g. drawdown, annuity).
How much can you pay into a pension?
You can normally pay in up to 100% of your earnings each year (or £60,000, whichever is lower). This is called your annual allowance.
Even if you’re not working, you can still pay in up to £2,880 per year, which the government boosts to £3,600 with tax relief.
Tax relief on pensions
One of the biggest benefits of pensions is tax relief – essentially, the government rewards you for saving.
- If you’re a basic-rate taxpayer (20%), every £80 you put in is topped up to £100.
- Higher- and additional-rate taxpayers can claim even more through their tax return.
Net pay vs relief at source
How you receive tax relief depends on your scheme:
Net pay: Your pension contributions come out before tax is calculated, so you automatically benefit from your highest rate of tax relief.
Relief at source: You pay contributions after tax, but your provider claims back 20% for you. If you pay higher-rate tax, you’ll need to claim the extra relief via your tax return.
Salary sacrifice
Some employers offer salary sacrifice, where you agree to give up part of your salary and they pay it into your pension instead. This can save both you and your employer National Insurance contributions, making it a very tax-efficient way to save.
A note for the self-employed
If you’re self-employed, there’s no auto-enrolment safety net – you need to set up your own pension.
Options include personal pensions or Self-Invested Personal Pensions (SIPPs), where you decide how much to contribute and where it’s invested.
Contributions are still topped up with tax relief – so if you pay in £80, the government adds £20.
It can feel tough to prioritise when income is irregular, but even small, regular contributions can build up powerfully over time.
Common pension myths (and the truth!)
‘I’m too young to think about pensions.’
The earlier you start, the easier it is. Even a little now is better than a lot later.
‘I’ll lose all my money if the stock market falls.’
Pension funds are invested for the long term and spread across different assets to reduce risk.
‘I can’t afford a pension.’
With employer contributions and tax relief, pensions are often more affordable than you think.
Why pensions matter (even if retirement feels a long way off)
• Time is your biggest ally. The earlier you start, the more years your money has to grow through compound interest.
• Future financial freedom. A pension helps ensure that you’re not relying solely on the State Pension, which on its own is unlikely to cover all your needs.
• Peace of mind. Knowing you’re putting something aside for the future brings confidence and reduces money stress.
Think of your pension as a gift to your future self. You don’t need to have it all figured out today, but starting small and being consistent will give you choices, freedom and peace of mind later on.
At Women’s Wealth, we believe pensions should feel empowering, not overwhelming. We’re here to help you take those steps with clarity and confidence.
