Why young people should think about pensions
With housing costs, career ambitions and short-term savings taking priority, pensions can easily fall down the list for young people. Yet delaying retirement planning could mean missing out on one of the most powerful advantages available: time. This article explores why starting early matters, how compound growth can transform even modest contributions, and the valuable tax benefits that make pensions a compelling long-term option.
The young, understandably, are unlikely to focus much on their pensions and retirement. Before all that comes getting on the housing ladder, building their careers, and setting aside anything they can for a rainy day fund.
In fact, in late 2025, Pensions UK asked working-aged adults about their financial resolutions for 2026. Reviewing and reducing monthly spending (31%), starting or building emergency savings (28%), and saving for a specific goal such as a house deposit or holiday (26%) took the top spots.
Meanwhile, reviewing their pension plans and retirement goals (12%), and increasing pension contributions (10%) ranked towards the bottom. Also, according to a March 2026 Guardian article, 12% of Generation Z think pensions are pointless as they don’t even view retiring as a viable option.
Yet, it’s the younger generations that could benefit the most from taking retirement planning seriously. Their later years are coming whether they like it or not. But the benefit of time means even modest contributions today could grow into significant savings over the long term.
But they should seriously consider acting now to make the most of their time.
The current risks
Young people could benefit from thinking about their pensions if they haven’t already, simply because they’re likely already behind. In its latest interim report on the state of retirement saving in the UK, the Pensions Commission found that 15 million people are undersaving for retirement, which could reach 19 million without action.
In fact, a new report from Pensions UK found that only 23% of the working population are on track for a moderate lifestyle in retirement.
Yet, while these figures can be worrying, it’s not to say they can’t be rectified. On the contrary, more so than their older counterparts, young savers could benefit from the magic of compounding.
Why starting small and early can pay dividends
Compound growth is the process of generating returns not only on your original investment but, also on the returns that have already been earned. By reinvesting income, such as dividends, and any growth achieved, a portfolio can benefit from a "growth on growth" effect over time.
Pensions are primed to benefit from the impact of compounding. Say someone aged 50 has a target retirement age of 67. Their current pension pot is valued at £50,000, and they plan to make monthly contributions of £500. The expected annual growth is 5%, and there will be an annual contribution increase of 2%.
With these parameters, the pension pot would grow to nearly £282,000 by age 67. Yet, if that same person started at the age of 30, the pension would have a value of just over £1,000,000 at the time of retirement.
Of course, the value of investments and the income from them can fall as well as rise and are not guaranteed. Investors might not get back their initial investment. But, by starting sooner, people will have a better chance of seeing their savings grow.
The tax benefits
It’s not as if younger generations are averse to investing for their futures. The Guardian also reported in May 2026 that nearly 30% of Gen Z started investing in early adulthood, before even entering the workforce. This compared to just 15% of millennials and 9% of gen X, according to a World Economic Forum (WEF) report.
For many of these young investors, it may be worth considering making some of these investments through a pension, if they are not already doing so. Pensions provide many benefits for long term investment and savings plans.
Some of the tax benefits available with pensions include income tax relief on contributions, no capital gains tax levied on investments that are transacted within a pension, and no dividend tax on dividends received within a pension wrapper.
Remember that tax treatment depends on your individual circumstances and may be subject to change in the future.
It is never too early to plan for retirement. If you’re at the start of your career but still thinking about the long term, or if you have young family members you’d wish would take their pensions more seriously, our advisers are ready to take your call. You can book a free, no obligation call with one of our team today.
Important information
This article is for information purposes only. It is not intended as financial advice.
Fees, charges and eligibility criteria apply.
The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed and can do down as well as up. The benefits of your plan could fall below the amount(s) paid in.
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