Pension planning: more urgent than you think?

24 February 2025

Pension planning is often overlooked amid more immediate financial concerns like bills and taxes. However, a little planning today could pay off later by helping you to enjoy a richer retirement.

Getting a grip on the big pension questions – how much and when to contribute, what type of pension to contribute to, and what to invest the money in – is often acknowledged throughout a career as “very important”. However, actually answering these types of questions skulks in the to-do list shadows as the least urgent thing in the world - until it’s suddenly the most urgent.

William Stevens

Partner, Head of Financial Planning

A target retirement age finally coming into view may be the most common time to start thinking about how to make the most of it when it arrives, but it’s far from the best one.

The perceived lack of more urgent action in pension planning is partly because of its importance, akin to responding immediately to mundane emails, and never to those that we feel deserve a more thoughtful response. It’s also due in part to the perceived complexity. Not knowing where to begin is frequently why we don’t.

However, putting planning off until it becomes more urgent means your pension could miss out on the opportunity to benefit from compounding, where the interest earned on investments grows exponentially over the years the investments are held.

Capital at risk.

Please be aware that the value of your investments may fall as well as rise. The content of this blog post reflects our current understanding of UK legislation and only impacts those within the UK tax system. Tax treatment depends on personal circumstances, and the rules may be subject to future change.

A little today could be life-changing over time

What psychologists commonly refer to as the intention-action gap is, in personal finance, less of a gap and more of a gulf. The typical response to bridging this gap is simplification. In the context of pension planning, think of auto-enrolment, with its default contribution rates and fund choices. Defaults are more of a bypass than a bridge, which makes them very effective, especially when the gaps get bigger and the emotions get heightened.

On average, defaults are an excellent idea. But feeling like you’ve done something can also stop you doing something better. The default fund choice is great for getting cash off the unproductive sidelines, but it can be a hindrance to getting that cash into the right place for you.

In the context of pension planning, which can span multiple decades before and increasingly after a given retirement date, a little better right now – in terms of fees, funds, or functionality – can easily compound into a life-changing difference over time. As a result, pension planning could be seen an urgent matter - precisely because its rewards are so relatively far away.

Should you contribute to your workplace pension or a private SIPP?

A major source of pension-related complexity for many people, especially towards the end of the tax year, is deciding whether to contribute one-off amounts to a workplace pension or to a private SIPP.

The temptingly simple response is to pick one pension for everything. This tends to mean the one that contributions are automatically already going into, the workplace one.

This can be the best solution. However, given the quantity of relevant variables in both individual circumstances and the features of a particular pension plan that can affect the best thing to do for a given individual at a given point, it’s rarely quite so simple.

Decontextualised comparisons are impossible. Even if all SIPPs and workplace pensions were the same, the people that own them certainly aren’t, and different current positions, future plans and even different personalities need to be accounted for.

SIPPs and workplace pensions, therefore, are better seen not in direct competition with each other, but as playing different roles in a wider pension-planning strategy.

What to consider when balancing your pension contributions

The most suitable solution for each saver will be determined by how you balance three main factors: free money, flexibility and fees.

Free (and faster) money

If your employer matches contributions and/or operates a salary-sacrifice scheme (and especially if they also pass on their employer national insurance savings to you) with your workplace pension, this will likely outweigh any other advantages to investing elsewhere. Some employers will set up these benefits for employees’ SIPPs, though this is rare.

Contributions to a workplace pension that operates as a salary-sacrifice scheme also benefit from receiving the full tax relief, and therefore the potential investment growth, sooner. Whereas contributions to a SIPP receive basic-rate tax relief automatically after about six weeks, with any remaining higher and additional-rate relief claimed back via self-assessment (possibly many months later).

Flexibility

Workplace pension schemes are designed to suit large groups of people and meet the needs of everyone enrolled. As a result, the fund manager is likely to take a conservative investment approach and prioritise holding less volatile asset classes over those that offer the potential for higher returns. Changes to your investment portfolio may also take some time to be agreed, due to multiple stakeholders being involved in the decision-making process.

SIPPs tend to offer far greater flexibility, providing access to a broader choice of investments and greater control over both contributions and withdrawals – especially useful for maximising tax benefits on the way in and out. This flexibility allows you to implement a given investment strategy across an entire portfolio and potentially include more specialist options like direct company shares and commercial property.

SIPPs also tend to afford administrative advantages, including access to an Adviser who can support and guide you as you make financial planning and investing decisions.

Fees

The only universal thing that can be said about fees is that they’re worth paying attention to. Sometimes fees reflect the flexibility of the scheme and sometimes they don’t. Some of the most basic and limited-choice mass-market pension schemes are the most expensive. A workplace scheme that’s the cheapest option for a current employee can become the most expensive if that employee changes jobs. Given a few decades and a few hundred thousand invested, a fraction of a percentage-point difference in cost can compound into millions of final fund value foregone (or saved).

A little planning goes a long way

Making the most of the opportunities afforded by both workplace and private pension arrangements needn’t require impractically complex calculations. But it does require planning.

Sometimes that’s a simple top-up to a SIPP to maximise an annual contribution allowance at the end of the tax year. Or it may be a more complex navigation of the various traps that can catch high earners without careful planning.

In almost every case, while the immediate benefits are not to be ignored, the way they compound is where the real value lies.

Our Wealth Planners regularly help clients develop strategies to achieve their financial goals, from maximising pension contributions to forecasting how much you will need to save for retirement. Get in touch to book a complimentary Financial Roadmap with one of our Wealth Planners. Your roadmap will identify key financial events over your lifetime and outline a plan to help you save for them.

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A Killik & Co client story: playing catch-up with compounding

James was a high earner, and had been for years. Along with his high earnings, he’d had high intentions. He knew the benefits of not only contributing to his pension, but of doing so beyond the default amount going into the default fund. He, very seriously, meant to get around to sorting it all out properly – consolidating previous plans, working out the best amount to contribute (including making use of unused allowances from prior years while avoiding the tapered annual allowance ‘trap’), deciding on an investment strategy, opening a private SIPP for top-up contributions… the works.

This was part of the problem. Every time he looked at anything, he saw everything all at once. It was daunting. It was also, at least to James’s eyes, never that urgent. He was confident that given his earnings power, he could catch-up with his contributions later, when life had ‘settled down’ a bit, something it had been stubbornly refusing to do, year after optimistic year.

And then an off-the-cuff remark from a colleague changed everything. “Oh, didn’t you know,” James’s colleague Mary had said one evening, over an after-work drink, “Directors can get their pension contributions paid into private SIPPs. You just have to ask.”

Within a month of Mary offering to put James in touch with her Adviser at Killik, after years of gradually growing intentions, everything suddenly clicked into place.

This client story is for illustrative purposes only. The use of Killik & Co’s services does not guarantee similar outcomes, as investment results will vary based on individual circumstances. The value of investments can go down as well as up, and you may not get back the amount originally invested. Tax rules and regulations are subject to change and may affect your investments.