The pension decision that could lead to retirement regrets

Delaying pension saving by 10 years could more than double the annual contributions needed to achieve a similar outcome.

Employers should encourage employees to check their pensions and be aware of the cost of delay when reviewing contributions and retirement plans.

Increased living costs mean that pension savings may not be a priority, and some people may put retirement planning on hold altogether. However, this could have significant implications.

Research conducted by WEALTH at work among 2,000 UK workers with a defined contribution pension found that more than four in five (83%) are concerned living cost pressures will leave them less comfortable in retirement due to a shortfall in pension savings, up from 81% last year.

Concerns are particularly strong among younger workers, with almost half (46%) of 18 to 24-year-olds and more than two-fifths (41%) of 25 to 34-year-olds saying they believe they will never be able to afford to retire. This compares to an average across all ages of 38%.

Why the cost of delay matters

When it comes to retirement saving, time is one of the most valuable assets. Starting early gives pension contributions longer to benefit from investment growth and compounding, whereas delaying means people may have to contribute significantly more later to achieve the same retirement outcome.

If someone aged 25 contributed a total of £2,400 per year into their workplace pension for 30 years (including both employer and employee contributions), they could build a pension pot worth £167,426 by age 55, assuming a 5% annual investment return. However, if they delayed saving for 10 years and only started contributing at age 35, they would need to contribute £4,825 per year for the remaining 20 years to reach a similar pension pot of £167,520 by age 55.

This illustrates the cost of delay: waiting 10 years more than doubles the annual contribution required to achieve a similar outcome. The impact can be significant because delaying contributions may mean missing out on employer payments, tax relief and years of potential investment growth.

For younger workers already under pressure from day-to-day costs, starting early can help make saving feel more manageable and gives pension savings more time to grow and benefit from the power of compounding. For example, someone in their 20s, saving just 1% more each year into a workplace pension can boost future savings by 25% in retirement if their employer was to match this.

People who are saving into a pension also need to check whether their current level of contributions are likely to be sufficient to achieve the sort of retirement they are hoping for, particularly if they started later or have gaps in their contributions.

5 steps to empower employees

Offer tailored support: Make it relevant by tailoring financial education to where employees are in their lives. For younger employees, focus on how pension schemes work, contribution levels, the cost of delay, tax relief and the impact of compounding. For mid-career employees, include retirement targets, investment choices and whether savings are on track. For those approaching retirement, cover income options, tax, scams, potential consolidation and access to investment advice.
Make pensions simple, visual and jargon-free: Employees often need clear explanations of how pensions work, what they and their employer pay in, where money is invested and what it could mean in retirement. Interactive workshops, short videos, calculators and personalised examples can make the message easier to understand and more memorable.
Offer financial guidance sessions: One-to-one financial guidance or coaching sessions can be particularly useful for those who need a deeper level of knowledge around their pension options, which is especially relevant for those at retirement. These could be delivered via a video call or via the telephone and can help people understand their options, identify potential next steps, and decide whether they would benefit from further support.
Give employees practical next steps: Engagement should lead to action. Encourage employees to check their current contributions, review whether they have more than one pension pot, consider their retirement income goal and know where to go for support. Simple checklists can help employees turn awareness into healthy habits and behaviours.
Bring in specialist support: Many employers and trustees are now working together with financial wellbeing, retirement and workplace savings specialists to help individuals engage with their pensions and savings throughout their career. If bringing in external support, due diligence should include workplace expertise, adviser qualifications, regulatory record, compliance processes and pricing structure.