Is it worth starting a pension at 55?

Yep! And don’t delay, get started with saving into a pension as soon as you can – the earlier you start, the more time you have to build up your retirement income, and provide a comfortable retirement income (which these days is hard to get).

Pensions are really great at growing over time, and you’ll get some great benefits from the government to help you save more. For instance, with a personal pension (which is one you set up yourself), you’ll automatically get a massive 25% bonus from the government on all the money you add to it.

And if you’re a higher rate taxpayer (paying 40% tax), or additional rate taxpayer (paying 45% tax), you can claim back some of the tax paid at those rates too – more on that later.

Plus, your money will grow tax-free, so it can grow even quicker over time. And it doesn’t stop growing when you retire, it will keep growing over time, replacing some of the money you start to withdraw from it.

Get started today – you can get set up straight away (in around 10 minutes) with one of the best pension providers in the UK. Here’s our top picks:

Best pension providers

Easy to use, and the experts handle the investments for you. Just add money.

Prefer to speak to an expert?

For retirement planning, here’s where to find top rated, local pension experts (financial advisors) in your area.

Starting a pension at 55: is it too late?

It’s never too late to start a pension (unless, well, you are actually retired). Pensions have some amazing benefits where even saving into a pension for just a few short years can really boost your retirement income.

Let’s start with how pensions work. They are typically invested (by experts) to grow over time, and the experts are pretty great at it. They use sensible investment strategies designed specifically for pensions.

So, you could expect your pension to grow given enough time – and the sooner you start saving, the more time your money has to grow. (We’ll run through all the benefits of pensions just below – including getting a 25% government bonus when you save into a pension.)

And being 55, you’ve still got plenty of time for your pension to grow. These days, you likely won’t retire until you’re at least 66 (when you can start taking the State Pension – more on that later), but it could be later on – it’s up to you, and how much you’ve got saved in your pension (so the sooner you start, the sooner you can retire!).

That means all you need to do is find a great pension provider you like, and start saving away – the experts will take care of everything investment wise, you just need to plan what you’re going to spend your retirement income on.

If you’re not sure where to get started with a pension, we recommend PensionBee¹, it’s easy to use, has low fees and a great record of growing pensions over time. Plus, we’ve managed to get you £50 added to your pension for free with Nuts About Money.

Benefits of starting a pension at 55

1. Grow your income in retirement

As we’ve mentioned, pensions are really great at growing over time, to build that comfortable retirement income you deserve.

A private pension, which is a pension in your name, which can be one you set up yourself (a personal pension), or one your company sets up for you if you’re employed (a workplace pension), is a great way to boost your total pension income alongside the government pension, called the State Pension.

The State Pension is what you’ll likely get when you reach State Pension age, which is currently 66. As long as you’ve paid at least 10 years worth of National Insurance contributions, but 35 years to get the full amount.

However, the full amount is just £221.20 per week, which is £11,502 per year – which is quite far below what is recommended for a comfortable retirement (£43,100 per year), and even the minimum recommended (£14,400). Here’s where to learn more about how much you might need in your pension pot.

2. Pensions are tax-free

Good news! Pensions are tax-free, which firstly, means as it grows, you won’t have to keep paying tax, so your money can grow much faster over time (or need to worry about any paperwork relating to tax).

Secondly, when you save money into it, it’s tax-free too. If you pay in from your salary through your job (via what’s called a workplace pension), it will go into your pension pot before you pay and tax.

If you’re not paying into your pension from your job (but into a personal pension), you’ll get a massive 25% bonus instead…

Note: you might pay tax when you withdraw from your pension, it depends on your income at the time.

3. 25% government bonus

If you set up your own personal pension (highly recommended), you’ll get a massive 25% bonus from the government on all the money you save into it. It’s automatically added into your pension by the government.

This is called tax relief, and is to refund you the tax you’ve paid on your income (e.g. your salary), as you’ll be saving into your pension after you’ve been paid and so have paid tax on it.

And if you’re a higher rate taxpayer (earning over £50,270 per year and paying 40% tax) or an additional rate taxpayer (earning over £125,140 per year and paying 45% tax), you’ll get some of the tax back that you’ve paid at those rates too (which you can do on a Self Assessment tax return).

Nuts About Money tip: for a personal pension, check out PensionBee¹. You’ll get £50 added to your pension for free too.

4. Pensions keep growing after you retire

Another great thing about pensions is that they don’t just have an end date when you retire – they can keep growing long after you retire too, so your pension savings can grow at the same time you withdraw from it, meaning your retirement savings can last that little bit longer.

You get to decide how much you want to withdraw from it, and when, so depending on how big your pension pot is, and how much it makes per year, your pension pot might not reduce in value as much as you think each year.

This is called pension drawdown, which simply means withdrawing cash from your pension pot, while leaving the rest of it as it is (with the experts growing in the right way for a retiree).

An alternative way of taking your pension is called a pension annuity, and is where you trade in your pension pot for a guaranteed income for the rest of your life (or a set number of years). And this income can increase every year too.

Learn more about the differences with our guide to pension drawdown vs annuity, or speak to a financial advisor nearer the time.

5. Withdraw 25% tax-free

As you’re 55 years old, you’ll be able to withdraw 25% of your pension pot completely tax-free. Although this is rising to 57 in 2028.

That means once you’ve built up your pension to a nice amount, if you want to, whenever you like, you can take 25% out of your pension, and pay no tax on it. And you can take it as a tax-free lump sum too.

The remaining 75% will be taxed like your salary now, so you might pay Income Tax on it, it all depends on your total income at the time.

You’ll still get the tax-free allowance of £12,570 per year before you have to pay any tax.

Note: if your pension pot ends up being pretty huge, there’s a limit on how much you can withdraw tax-free, which is £268,275.

6. No Inheritance Tax

Finally, pensions have a great, lesser known advantage – they don’t count towards any Inheritance Tax.

Pensions don’t count towards your ‘estate’, which is all of your money, property and possessions added together. And anything over £325,000 could be taxed at 40%.

If you sadly pass away before the age of 75, your family (or whoever you decide) can receive your pension completely tax-free. If you pass away over 75 years old, whoever receives your pension may pay Income Tax on what they withdraw (it depends on their income at the time).

Pension rules

There are some rules and limits to be aware of, and the main one is that you can only save up to your total annual income each tax year (e.g. your salary), or £60,000, whichever is lower. This is called your annual allowance, and is a total across all of your pensions (e.g. counts towards both a work pension, and your own pension (personal pension).

However, if you haven’t used all of your allowance in the last 3 tax years, you can typically use that, and make up any difference too (which is called the carry forward rule).

A second rule is that once you start withdrawing from your pension, you’ll only typically be allowed to continue saving £10,000 per year, rather than the limits above. This is called the Money Purchase Annual Allowance (MPAA).

How to start a pension at 55

Heard enough for now and want to get started saving? Here’s how to open a personal pension in just 3 easy steps.

1. Choose a great pension provider

The first thing to do is find a great pension provider (company) that you like. Don’t worry, we’ve made this bit easy for you – we’ve reviewed all the best pension providers in the UK (and we’ve put our top picks above too).

Each provider is a bit different, with different levels of customer service, fees and other things such as a mobile app to manage your pension easily. And of course, if you want to let the experts handle things, or manage your own investments (if you do, check out the best SIPPs).

Our top pick is PensionBee¹, it’s easy to use, has low fees and a great record of growing pensions over time – and we’ve bagged you £50 added to your pension for free too.

2. Choose a pension plan

Once you’ve picked your pension provider, now it’s time to choose where you want your pension actually invested.

Modern pension providers will offer a few easy to understand options, all managed by experts, and these can be things such as just their standard plan, or if you prefer your money invested ethically, such as not invested in fossil fuel companies.

3. Save money!

Now all that’s left to do is add some money, which is called making a pension contribution.

You can either add money as a one-off when you get started, or ideally, set up a monthly savings plan so your pension pot can keep growing on autopilot, and you don’t have to worry about it too much.

Remember, adding as much as you can early now, will mean it has much more potential to grow over time, building up a nice big pension pot and retirement income.

And, the government will add 25% to everything you save – already giving your pension a great boost when you start.

Have any old pensions?

If you’ve got any old pensions lying around from old jobs – you don’t have to leave them where they are until you retire. You can actually transfer these pensions to your new pension if you want to.

It’s normally a great idea to do this as you’ll be able to manage your total pension pot in one place, so there’s no chance you’ll forget about all your different pensions when the time comes to retire (which happens more than you might think!).

You’ll also be able to make sure they’re with a great provider, and growing in the way you’d like (with the experts and pension plan you choose).

Plus, you might be able to benefit from lower fees, and potentially grow more over time too.

Transferring and combining all your pensions together is called consolidating your pension, and is very popular for all of those reasons.

Not sure where they are?

If you’re not sure where your pensions actually are, check out Gretel, it’s a free service to track down and find lost pensions.

Have you got a pension from work?

If you’ve got a pension from work, or they offer one, it’s a good idea to consider saving into it, as there’s some free cash to be had!

Normally, if you pay in 5%, your employer has to pay in at least 3%, which is required by law. Meaning you could get a free pay rise by paying into your workplace pension (pension from work). Pretty great right?

These are called employer pension contributions - and if your employer will add more if you add more, take full advantage!

Your money will go straight into your pension tax-free, directly from your pay.

The downside is that you don’t get to pick which pension provider to use, and some workplace pensions aren’t the best. Employers don’t tend to do lots of research and pick one of the very best, they sometimes just pick any old one so they can tick the box to say they offer one to their employees.

However, the free cash typically makes up for that, and it’s a great idea to use a workplace pension first, until the point where you don’t get any more free cash (e.g. pay in 5% to get the free 3%). 

After that, it can be a good idea to use a personal pension, where you have full control over your pension, and can decide which pension provider to use – so you can pick a great one, and benefit from things such as great customer service, low fees and deciding where your pension is invested.

And, you have the freedom to transfer your pension to another provider in future if you want to (which you can’t do with your current work pension). 

Ready to start your pension?

Ready to get cracking with your pension? Don’t delay. At 55 years old, it’s not too late to start a pension – it’s a great time to start.

You’ve got many good years left for your pension to grow, and it can grow pretty big! You might be surprised. Your money can also keep growing in retirement too.

With a personal pension you can manage your pension yourself, while leaving everything investment wise to the experts (or making your own investment decisions if you want to), and take advantage of all the great tax-free saving benefits a pension has, such as the massive 25% bonus from the government on all of your pension contributions.

A great option to get started is with PensionBee¹, it’s easy to use, has low fees and a great record of growing pensions over time. We’ve bagged you £50 added to your pension for free too.

Another great option is Moneyfarm¹, where you can also save and invest outside of a pension (such as within a tax-free ISA). For all the top options, check out the best pension providers.

And that’s it. Good luck saving into your pension!