Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Life tends to take shape in your 30s, with career progression, the start of a family, and perhaps your first home. And while there’s a lot going on in the here and now, it’s also a vital time to start investing in your future self.
One of the easiest ways you can do this is through a pension. For many, a pension will be their main source of income in retirement, and it comes along with some helpful perks. When it comes time to withdraw, you will get 25% of your pension tax-free (up to £268,275), and as you’re building up your pension, you will get tax relief on contributions. The investments you make inside the pension also grow free from income tax and capital gains tax.
In your 30s, it may be tempting to shirk off pension payments in favour of other costs. But the earlier you start, the easier your pension journey will be, and in the long run, it will save you tens of thousands of pounds in contributions if you have to catch up later in life.
How to start contributing
Anyone aged 22 or over who is employed and earning £10,000 or more should be automatically enrolled into a workplace pension scheme.
When you are auto-enrolled at least your first 3% of contributions are matched by your employer. If you opt out of auto-enrolment you’ll be waving goodbye to this free money, so make sure you stay in the scheme if you can afford to.
The minimum auto-enrolment contribution is 8% of earnings between £6,240 and £50,270 – of this, 4% comes from the employee, 3% from the employer and 1% via pension tax relief.
If you don’t have an employer, you can instead invest through a Self-invested personal pension (SIPP). While you won’t be getting the top-up from work in this scenario, you still can get the tax relief. It’s important to note that if you want a SIPP, this won’t be automatically done for you like it would be in a workplace. Instead, you will need to set one up yourself.
How much should I save?
A rule of thumb is to take the age at which you started saving into a pension and halve it. That should be the percentage of your salary you contribute each year. For example, if you start saving at 20 then you aim for 10%, while delaying until 30 means you’ll be targeting 15%, and waiting until you’re 40 will mean you need to set aside 20%.
These percentages would include any contributions from your employer and tax relief.
If you started contributing to your pension at 30 on a £40,000 salary, in an automatic enrolment pension scheme that would usually mean £3,200 was added to your pot in a year. Assuming your salary grew by 2% each year, and your pension pot returned 5% each year after fees, you’d accumulate over £392,000 by the time you were 65.
This is a strong pot, but by upping that contribution from the automatic 8% to 15%, you could instead end with a pot of over £735,000, according to calculations by AJ Bell.*
Have a budget and write down your savings goals
For most people in their 30s there will be many competing financial priorities. For example, you may be saving for a first home.
Clearly all of us only have so much money and it’s unrealistic to save every penny you earn, but writing down what you have coming in and going out is a good first step to understanding what you can afford to set aside for later life. And the earlier you do this, the easier it will be.
What is pension tax relief?
If you think you can afford to save above and beyond your workplace pension, your contributions will benefit from pension tax relief, which is 20% of your contribution if you’re a basic rate taxpayer. This will automatically convert an £80 contribution into £100 in a pension, while higher and additional-rate taxpayers can claim back extra tax relief from HMRC.
Some workplace pensions – such as salary sacrifice pension arrangements and so-called ‘net pay’ schemes – will pay this extra tax relief into your account automatically, provided your contribution comes from salary that is taxed at 20% or higher.
If HMRC must instead top up your pension after income tax (often called relief at source), it’s important to keep alert if you’re a higher-rate taxpayer. HMRC will automatically top up the 20% for basic income tax, but you will need to make a claim for any income tax you’ve paid on pension contributions above this amount. This money will then be reimbursed to you, and you can choose to keep it or contribute it to your pension.
Because of this generous tax treatment, you can usually only pay up to £60,000 into a pension each year, so long as you have earnings up to that amount.
Think about your investments
While how much you pay into your pension (and how early you start) is arguably the key factor in determining your eventual retirement outcome, your choice of investments can provide a significant boost too – particularly over the longer term. If you’re in your 30s, your investment time horizon is likely to be about 30 years, which is a long time in anyone’s book.
Your auto-enrolment pension will be picked for you by your employer. If you take no action, you will be placed into the ‘default’ investment fund, which has a cap on charges currently set at 0.75%, though many schemes will come in well below this fee cap. In some cases, it may be possible to get pension fees that are lower than your workplace scheme, which can mean a difference of thousands of pounds in your pot overtime. You may therefore wish to transfer your pension to another provider after you have left that particular job and are therefore no longer receiving contributions from your employer.
This default fund will not be designed based on your personal attitude to risk. Default funds have varying investment strategies, meaning they deliver different investment outcomes for their members. If you are invested in a default fund, it may aim for a lower risk than you would prefer, because it’s aimed at a wide range of ages.
At the very least you should have a look at the default fund your money is going into and make sure you are happy with the investments you own and the level of risk you are taking. You might decide that you’d rather pick your own investments from the range on offer to you.
While attitude to risk differs from person to person, generally younger investors can tolerate greater fluctuations in the value of their pot over the short-term as they don’t need to access the money for decades. Historically, those who have been willing to accept volatility over the short-term have generally been rewarded via returns over the long-term.
Can I run a pension myself?
As a general rule of thumb, you should maximise any employer pension contributions before setting up your own personal pension. But if you want to save in a pension such as a SIPP, or if you are self-employed and don’t benefit from a workplace pension, you’ll enjoy a whole world of choice for your investments.
If you aren’t confident in choosing individual stocks or bonds, you may want to look at funds or investment trusts where a fund manager will select everything that goes into their portfolio.
An alternative is to use a tracker fund or exchange-traded fund that mirrors the performance of a specific basket of stocks, bonds or other asset classes, or a mixture of them.
Those building their retirement fund through a SIPP can also opt for a Ready-made pension. Ready-made pensions are a low fee option that allows for a more hands-off approach than a traditional SIPP. It has set options for investing your pension, geared towards those who would prefer not to manage their investments personally.
Look at the charges
If you’re picking your own investments, once you’ve established the appropriate level of risk it’s crucial to make sure that you keep your costs as low as possible. This is because even small differences in charges can compound over time to wipe thousands of pounds off the value of your pension.
Once you’re happy with your attitude to risk and the investments you have chosen, you can just keep an eye on your pension by checking in once a year to make sure you’re still on track for your retirement goals and ensure investments are performing as expected. If all is well, you can sit tight until you're around five to ten years from retirement, where you may want to readjust your risk levels. In fact, in most cases the last thing you want to do is trade too often as this will layer on extra costs with no guaranteed benefit.
*Calculations based on salary sacrifice pension scheme
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
