Pensions: Are You Saving Enough?

Pensions: are you saving enough?

Are you new to pensions and looking to understand the basics, or do have a pension already but want to know how to get the best from it?





Look no further – as part of Pensions Awareness Week (11 – 15 September) we share the answers to the questions we get asked most on this topic by our clients.

From understanding what a pension is and the different types available, to knowing more about the tax reliefs and benefits, and crucially, deciding if pensions are even worth it.

Here are the key things you need to know, to help you get the most of your out of your pension and, save enough for a secure financial future.

What is a Pension?

A pension is a tax-efficient way of saving money for your retirement.

There are different types of pensions. Two of the most common ones are:

  • UK State Pension Scheme (see below for more details)
  • Workplace Pension – if you are a member of a workplace pension, both you and your employer save (contribute) into a pension.
  • You may also have a personal or private pension that you’ve set up for yourself. You can save into several different pensions, as long as you stay within your annual limits.

Key points to remember:

  • To get pension tax relief, your personal pensions contributions can’t be higher than your earnings or £3,600, whichever is greater.
  • Your pension contributions are limited by the pension annual allowance (AA) which is £60,000 per annum.
  • To encourage you to save into your pension, the government also adds money to your pot through pension tax relief.
  • When you reach the age of 55 (rising to 57 from 2028) you can take the money from your pension as an income, lump-sum, or a combination of both.

What is a State Pension?

The state pension is a regular payment from the government to help with the cost of living in old age. The payments begin when you reach the government’s state pension age (currently 66 years for both men and women, this will increase to 67 from 6 May 2026).

It’s not always easy to know whether your pension(s) will be enough to provide you with the retirement you want. You also need to factor in how much the State Pension will provide you with.

For the 2023-2024 tax year, the new State Pension is £203.85 a week (£ 10,600 per year), but only those who meet two criteria are eligible for the full sum:

  • You must have reached retirement age on or after 6 April 2016.
  • You must have made 35 “qualifying years” of National Insurance contributions.
  • You accrue one qualifying year for every year you are in work, and you need a minimum of 10 qualifying years to receive the State Pension at all.

In order to achieve a qualifying year, you need to have earned a minimum of £242 per week in the 2022/23 tax year and paid the required NI contributions or receive national insurance credits. The proportion of the State Pension you receive is calculated on the number of qualifying years you have between 10 and 35 years.

What is an Occupational Pension?

Occupational pensions are organised by an employer for its employees. There are broadly two main types of occupational pension schemes:

  • Final salary (Defined Benefit Scheme). A final salary pension scheme (or defined benefit schemes) is linked to your salary and based on pay at retirement, as well as the number of years worked. An accrual rate is set by your employer and used to work out the pension amount. For example, an accrual rate of 1/60th means you get 1/60th of your final salary for every year of service. So, if you worked for 45 years, you’d get 45/60ths, or three quarters of your final salary at that company on retirement.
  • Money purchase (Defined Contribution Scheme). A money purchase scheme (or defined contribution scheme) is based on the amounts paid into the scheme – by either the employee, or employer, or both – and the way that this money has performed when invested. The income you get from a money purchase scheme depends on when you choose to access your cash, what charges apply and how successfully the money was invested.

Do I get tax relief on my pension contributions?

If you’re under 75 you get tax back on all your pension contributions, subject to the upper limits set out below. 20% tax relief is automatically applied to pension contributions you make, or which are made direct from your salary by an employer. Higher rate taxpayers can claim an additional 20% and top rate taxpayers an additional 25% (remember – this is not automatic and must be claimed).

20% tax relief doesn’t mean that you receive 20% of your contribution back. Instead, it is the difference between your contribution amount and your pre-tax earnings.


  • An £80 pension contribution would have been generated from earnings of £100 (from which the taxman deducted 20% to leave you with the £80 to put into the pension). In effect, you only have to pay in £80 for every £100 that lands in your pension.

What are tax free investment gains?

These are investments that are made with your pensions cash benefit from high levels of tax relief. In most cases, any gains that you make from those investments can be enjoyed tax-free.

Are pensions taxable?

Any retirement income over your personal allowance is taxed, just like your wages are when you work. The personal allowance is currently £12,570, but this could change in the future.
However, pension freedoms introduced in 2015 mean people now have much more control over how to manage their pension savings than ever before, and you can take up to 25% of your pot as a tax-free lump sum when you retire.

So, a basic rate taxpayer who has paid £100,000 into their pension will have received 20% tax relief, leaving them with a £125,000 pot. On retirement they can take 25% of that – £31,250 – as a tax-free lump sum. The rest is taxed at 20% as and when they take it out, though people with a higher income could pay more.

Are pensions protected?

Many people want to know if their pension would be safe if their employer were to go bust.
This depends on what kind of pension you have, but there are safety nets should the business go into administration – as long as your pension provider is authorised by the Financial Conduct Authority.

Most workplace pensions and self-invested personal pensions (SIPPs) are covered by either the Financial Services Compensation Scheme or the Pension Protection Fund, but there are caps placed on the levels of compensation that are available, so you might not get 100% of your money back.

Is my pension subject to inheritance tax?

Pension pots are not subject to inheritance tax when you die. If you die before the age of 75, the person(s) who inherit your pension pot can draw on the money as they wish, without paying any income tax either.

However, if you are 75 or over when you die, a beneficiary of your pension pot will have to pay income tax on any withdrawals at their marginal rate (i.e., the highest rate of income tax that they pay).

If your beneficiary is entitled to continue receiving payments from an annuity or defined benefit pension after your death, then these payments will be subject to income tax at their marginal rate.

Why are pensions important?

Millions of people aren’t saving nearly enough to give them the standard of living they hope for when they retire. It’s important not to rely on the State Pension to keep you going in retirement. Even if you’re eligible for the full State Pension of £203.85 a week for the tax year 2023/24, this is below what most people say they hope to retire on.

If you fall into this category, you have three choices, you can:

  • Retire later
  • Start saving more
  • Lower your expectations of what you’ll be able to afford in retirement.

Will I get a tax-free lump sum when I retire?

You can usually take up to a quarter (25%) of your pension savings as a tax-free lump sum.

If you’ve built up your own pension pot in a defined contribution scheme (instead of a defined benefit pension scheme– also known as a final salary scheme) – you can use the rest of your pot however you choose when you reach the age of 55. This will increase to age 57 from 6 April 2028.

Are pensions worth it?

In short – yes!

One of the main benefits, when you pay into a workplace pension or personal pension scheme or a SIPP, you can get money back from the government in the form of tax relief. It’s a way of encouraging you to prepare for your retirement and it effectively amounts to free money, so make the most of it!

And finally, a question for you…

Have you nominated a beneficiary for your pension?

In the event that you die before you retire, the trustees of your pension (those responsible for making sure that a pension scheme is run properly) will award your savings to whoever they decide is the most suitable. However, their choice may not necessarily match yours.

If you have a defined contribution pension, make sure you have nominated who you would like to receive your pension in such an instance. You can choose family members or close friends (and it can be one or more than one person), but keep details of your beneficiaries up to date, so that the trustees have a good idea of where you would like your money to go.

Review Your Financial Plan

To arrange an appointment to talk more about pensions, or any other financial planning matters, you can contact us via your usual MHA adviser, or directly on 01604 621 421 or

Risk considerations

Past performance is no guarantee of future returns.
The price of units and the income from them can fall as well as rise.
This investment is intended as a long-term investment and under current HM Revenue & Customs’ practice it’s not normally possible to access the fund(s) prior to the age of 55. The minimum age will increase to 57 from 2028 with further increases expected as the State Pension Age goes up.
Please be aware that there may be occasions when an individual fund or funds may have a higher risk rating than your overall stated attitude to risk. If this is the case, then the overall risk rating applied to all of the combined funds being recommended is still designed to meet your stated tolerance.

Tax rules are subject to change.
MHA Caves Wealth is authorised and regulated by the Financial Conduct Authority (FCA), Financial Services Register number 143715.

Risk warning

This is a marketing communication, general information only, and is not intended to be individual investment advice, a recommendation, tax, or legal advice. The views expressed in this article are those of MHA Caves Wealth or its staff and should not be considered as advice or a recommendation to buy, sell or hold a particular investment or product. In particular, the information provided will not address your personal circumstances, objectives, and attitude towards risk. Therefore, you are recommended to seek professional regulated advice before taking any action.

Key Risks:

  • Capital at risk.
  • Past performance is not a guide to future performance.
  • The value of an investment and the income generated from it can go down as well as up, and is not guaranteed, therefore you may not get back the amount originally invested.
  • Investment markets and conditions can change rapidly. Investments should always be considered long term.
  • This Information represents our understanding of current law and HM Revenue & Customs practice as at 01/09/2023. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.