4 practical factors to consider before saving for retirement outside of a pension

More than half of UK pension savers are also building up retirement savings outside their pension, according to a MoneyAge article (22 December 2025). As pensions provide some useful benefits when saving for retirement, these savers could be missing out.

The survey found that people saving for retirement outside a pension were using a mix of cash savings, Stocks and Shares ISA, buy-to-let property, and other investments with the aim of building long-term wealth.

For some people, these options could be appropriate for their financial circumstances and retirement goals. However, they might also have overlooked the benefits of using a pension.

Please note: A pension is a long-term investment the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

4 reasons pensions are a valuable way to build retirement wealth

1. Your employer will contribute to your pension

If you’re an employee aged over 22 earning more than £10,000 a year, your employer must auto-enrol you into a pension. If you don’t opt out, your employer will need to contribute to your pension on your behalf at a minimum rate of 3% of your pensionable earnings, though they may contribute a higher percentage.

Should you choose not to save through a workplace pension, you’ll miss out on this additional money that could support you in retirement.

2. Pension contributions benefit from tax relief

To encourage workers to save for retirement, the government offers tax relief on pension contributions. In effect, this means some of the money you’ve paid in Income Tax is added to your retirement savings.

Pension tax relief is provided at your marginal tax rate. Usually, the basic rate is automatically added by your pension provider, and you can use a Self Assessment tax return to claim the remaining amount if you’re a higher- or additional-rate taxpayer.

In 2026/27, the amount you can contribute to a pension without facing a charge is usually £60,000 (the Annual Allowance) or 100% of your annual earnings, whichever is lower. If you’ve already taken an income from your pension or you’re a high earner, your pension Annual Allowance could be as low as £10,000.

Please note: HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

3. Your pension is usually invested

The MoneyAge article notes that people are twice as likely to save for retirement in cash (43%) outside a pension compared to a Stocks and Shares ISA (21%).

While cash can be tempting to avoid exposure to investment risk, the interest from a savings account could be lower than investment returns. As many people save for retirement over a long-term time frame, low-yielding cash accounts could mean they retire with significantly smaller pots than they would have if they had invested.

Normally, the money you deposit into a pension will be invested with the aim of delivering long-term growth. While returns cannot be guaranteed, this provides an opportunity for growth that outpaces inflation or cash interest.

4. Investments held in a pension aren’t liable for Capital Gains Tax

When investments aren’t held in a tax-efficient wrapper, such as a pension, the gains you make when you dispose of them could be liable for Capital Gains Tax (CGT). As a result, a pension could be an effective way to invest for your retirement.

Some circumstances might mean a pension isn’t the most appropriate option

There are times when using a pension to save for retirement might not be the most appropriate option.

For example, if your financial circumstances could mean you need access to the money in the short or medium term, a pension would lock it away. As a result, you might feel more comfortable holding the money outside of a pension.

Alternatively, you can’t usually access your pension savings until you turn 55 (rising to 57 in 2028). So, if you’re hoping to retire sooner than that, you might need to establish savings outside of a pension to bridge the gap.

Many people in retirement will draw from multiple sources to create an income stream that suits their needs and financial situation. Contributing to a pension doesn’t mean you can’t build retirement wealth elsewhere or vice versa.

Get in touch to talk about your retirement

If you’re unsure about your options for saving for retirement, please get in touch. We can assess if a pension might be right for you, as well as explore the alternatives.

Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

A pension is a long-term investment the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

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