Joining a company scheme at 18 seemed âtoo expensiveâ for Rio until someone close put him right
One 20-year-oldâs financial future is looking brighter after his aunt convinced him to join his workplace pension and take advantage of the âfree moneyâ on offer.
Rio started working at 18, too young to be âauto-enrolledâ into his companyâs pension scheme. He as given the option to join but had decided not to because he felt it was too expensive â but, fortunately for him, his âAuntie Susanâ is a pensions expert at a leading retirement firm, and she soon put him right.
Nearly two years later, being in the scheme has cost him about £2,000 in his own contributions, but he already has £8,000 in his fund.
âIâm glad my Auntie Susan could explain to me what I would be losing out on if I didnât join my workplace pension early,â he says. âAll I really saw was the fact that I would have less money to spend right now, but I didnât really understand the free money I was giving up.â
Since 2012, employers have had to enrol eligible workers into a workplace pension scheme into which both pay money. This regime is known as automatic enrolment, or auto-enrolment for short. It usually starts at age 22, if you are employed and earn more than £10,000 a year.
But you do not have to wait until you meet the criteria â you can ask to join a workplace pension from age 16.
Starting to pay into a pension early can make a huge difference to the amount you end up with when you retire. The government says every £1 that you save into a pension in your early 20s could be worth £9 by the time you retire. Thatâs includes tax relief and your employerâs contribution, but the lionâs share is investment growth.
With this in mind, parents, relatives and family friends are being urged to have this sort of conversation with young people about the benefits of joining a workplace scheme as soon as they are able to, as opposed to waiting until they are automatically put into it by their employer.
Rioâs Auntie Susan is Susan Hope, a pensions expert at Scottish Widows who specialises in workplace schemes and retirement planning.
Rio left school and got a job as a technical trainee in September 2024.
She says: âThe next month, he told me he wasnât going to join his workplace pension because it was âtoo expensiveâ. What he meant was that he felt his £83 a month (5% employee contribution) was too much for him.â
Hope adds: âWe had a long conversation about the benefits of pension saving and the free money available.â
Under auto-enrolment, the minimum contribution into a pension totals 8% â usually made up of 4% from the workerâs salary and 1% from the government in tax relief, plus 3% from their employer.
Rio â who lives and works in Scotland â had been told he would benefit from a more generous payment from his company. If he paid in 5% of his earnings, he would get a 10% contribution paid into his pension by his employer.
Hope worked out that once the employer contribution and tax relief (a top-up payment from the government) were taken into account, Rioâs £83 a month payment was turning into £312 a month. That was an extra £229 a month going towards his financial future.
For pension savers investing over a long period, returns will hopefully be turbocharged by the power of compounding. This is where your investment grows, and so you have more money to attract future returns.
Hope says in the…
