Your pension’s greatest asset? Time

Retirement might feel like a problem for another day. But when it comes to building a pension, time can be worth just as much as money.

In your 20s and 30s, there are plenty of financial priorities competing for attention. Rent or a mortgage, holidays, starting a family and simply enjoying life today can understandably feel more important than planning for something that might be three or four decades away.

That makes pensions particularly easy to overlook. You might already be paying into one through work, see the deduction on your payslip each month, and assume retirement is something you can think about more seriously later.

But there is an irony here: the further away retirement is, the more valuable the decisions you make today can become. That is because younger savers have something that cannot be recovered later, regardless of how much they earn: time.

Why starting early matters so much

Investing £100 today and earning a hypothetical 5% return would leave you with £105 after one year. If that £105 then earns another 5%, you aren’t just earning a return on your original £100 anymore – you’re earning a return on the previous return too. That is compounding. Given enough time, the effect can become surprisingly powerful.

Consider three people who each invest £100 a month until age 65, assuming an average annual return of 7%.

Of course, the 7% return used above is only an illustration; real investment returns don’t arrive in a straight line. Moneyfarm’s historical performance helps put that into context. Our Risk Level 5 portfolio returned 98.0% over the ten years to June 2026, compared with 80.6% for the ARC Steady Growth Private Client Index. This placed it in the top quartile of its peer group over the period. That journey included both strong years and difficult ones, including a fall of 11.6% in 2022.

For a younger pension saver, that is an important distinction. A long-time horizon doesn’t remove investment risk, but it can give you more time to ride out periods of market weakness. The right level of risk will still depend on your individual circumstances and how comfortable you are with fluctuations along the way.

Returning to our 7% illustrative assumption, the difference is striking. The person starting at 25 contributes only £12,000 more than the person starting at 35, yet finishes with more than twice as much under these assumptions. In fact, more than £214,000 of their final £262,481 comes from investment growth rather than the £48,000 they contributed themselves.

That doesn’t mean everyone in their 20s needs to make huge pension contributions. Quite the opposite. One of the advantages of starting early is that relatively modest amounts have longer to work.

Waiting doesn’t make building a retirement pot impossible. It simply means that you may eventually need to contribute considerably more to make up for the compounding time you’ve lost.

A pension gives compounding a helping hand

Time isn’t the only advantage pensions offer. The way pensions are funded can make each pound you save work harder too.

Personal pension contributions generally benefit from income tax relief. For a basic-rate taxpayer using relief at source, putting £80 of your own money into a pension results in £100 being invested after the provider claims £20 of tax relief. Higher and additional-rate taxpayers may be able to claim further relief, subject to their circumstances.

Your investments can then grow within the pension without UK Capital Gains Tax or Income Tax being charged on investment growth along the way. The trade-off is that pensions are designed specifically for retirement, so access is restricted until the relevant minimum pension age and withdrawals can be taxable.

For employees, there may be another valuable ingredient: your employer.

The important point is that there isn’t necessarily one way to fund retirement. A workplace pension, additional personal contributions, employer contributions and a personal pension or SIPP can potentially play different roles at different stages of your career.

Your pension can change as your life does

That flexibility can extend to how your pension is invested too. A Self-Invested Personal Pension (SIPP) can offer greater flexibility over how your retirement savings are invested. At Moneyfarm, we build and manage diversified pension portfolios around different levels of risk, allowing your investment strategy to reflect your circumstances, objectives and time horizon. For someone decades away from retirement, that may look very different from someone approaching the point at which they expect to start drawing an income.

For someone under 40, committing to the amount they’ll contribute for the next 30 years is unrealistic.

Your first job might leave little room beyond workplace contributions. A promotion could create scope to increase them. A bonus might provide an opportunity for a one-off contribution. Someone becoming self-employed might instead use a personal pension, while a business owner may consider employer contributions from their company.

That’s why it can be more useful to think of pension saving as a habit that evolves, rather than a contribution level you set once and forget.

One simple approach is to revisit your pension whenever your income increases. Even maintaining the same percentage contribution as your salary rises can mean progressively more money being invested without requiring a dramatic lifestyle change.

Don’t wait until retirement feels close

There is no perfect age, salary or contribution level at which retirement planning suddenly becomes important.

For someone under 40, the goal doesn’t necessarily need to be maximising a pension today. It can be much simpler: know what you already have, understand what you and your employer are contributing, and make a habit of reviewing it as your circumstances change.

Your 20s and 30s come with plenty of demands on your money. Retirement understandably won’t always be at the top of that list. But that’s also why starting early matters.

At Moneyfarm, we can help bring those pieces together: from understanding the pensions you already have and consolidating old pots where appropriate, to investing through a managed portfolio aligned with your risk profile and retirement goals. And as your career, income and priorities change, your pension strategy can change with them.

You can earn more money later. You can increase your contributions later. What you can never buy back is another decade of compounding.

Please remember that when investing, your capital is at risk. The value of your portfolio with Moneyfarm can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. The views expressed here should not be taken as a recommendation, advice or forecast. If you are unsure investing is the right choice for you, please seek financial advice.