When Should I Start Paying Into a Pension? (Spoiler: Now)

The Accounted Tax Team·4 March 2026·8 min read

Let's get the spoiler out of the way: the best time to start paying into a pension was yesterday. The second-best time is today. If you're reading this and you don't yet have a pension, this article is your gentle but firm nudge to change that.

We know — when you're self-employed, there are always more immediate demands on your money. Equipment to buy, invoices to chase, tax bills to pay, a rainy-day fund to build. A pension feels like a problem for Future You. But here's the thing: Future You is going to have opinions about the decisions Present You makes, and "I wish I'd started my pension earlier" is one of the most common regrets among people approaching retirement.

So let's talk about why timing matters so much, how compound interest works in your favour, and what a realistic starting plan looks like.

Why Starting Early Matters So Much

The magic of pensions isn't just tax relief (though that's excellent). It's compound interest — or more precisely, compound investment returns. This is the snowball effect: your money earns returns, those returns earn returns, and over time the growth accelerates dramatically.

Here's a simple illustration:

Scenario A: Start at 25

Contribute £200/month for 42 years (to age 67)
Total contributed: £100,800
Pot at 67 (assuming 5% annual return): approximately £340,000

Scenario B: Start at 35

Contribute £200/month for 32 years
Total contributed: £76,800
Pot at 67: approximately £190,000

Scenario C: Start at 45

Contribute £200/month for 22 years
Total contributed: £52,800
Pot at 67: approximately £96,000

Same monthly amount. Dramatically different outcomes. The person who started at 25 ends up with more than three and a half times the pot of the person who started at 45 — and they only contributed about twice as much in total. The rest is compound growth doing the heavy lifting.

That's the cost of delay: not just the missed contributions, but the missed growth on those contributions.

The Power of Compound Interest

Let's linger on this for a moment, because it really is the most important concept in long-term saving.

Compound interest means you earn returns on your returns. In year one, you earn 5% on your contributions. In year two, you earn 5% on your contributions plus last year's returns. In year three, you earn 5% on everything — contributions, returns, and the returns on returns.

In the early years, the effect is modest. But over 30 or 40 years, it becomes enormous. Roughly half of the final pot in our 42-year example comes from compound growth, not from the money you actually put in.

This is why financial planners obsess about starting early. You can't make up for lost time by contributing more later — well, you can, but it costs a lot more. To match the £340,000 pot from starting at 25, someone starting at 35 would need to contribute about £360 per month. Starting at 45, you'd need around £710 per month. And starting at 55, you'd need nearly £1,750 per month.

The numbers speak for themselves.

"But I Can't Afford a Pension Right Now"

This is the most common objection, and it's understandable. When you're self-employed and your income is uncertain, committing to regular pension contributions can feel like a luxury.

But consider a few things:

You can start very small

There's no minimum contribution for most personal pensions and SIPPs. You can start with £50 a month — that's less than £2 a day. It's the price of a coffee. Over 30 years at 5% growth, even £50 a month would grow to around £41,000.

Starting small builds the habit, and you can increase contributions as your income grows.

Tax relief makes it cheaper than you think

When you contribute to a pension, you get tax relief. As a basic-rate taxpayer, a £100 pension contribution only costs you £80 out of pocket — your pension provider reclaims the other £20 from HMRC. If you're a higher-rate taxpayer, the effective cost drops to £60.

So £50 a month in your pension actually costs you just £40 from your bank account. The government is literally subsidising your retirement savings.

You probably can't afford not to

The full new State Pension is £221.20 per week in 2025/26 — about £11,500 a year. Could you live on that? Most people can't, at least not comfortably. Without a private pension, you're looking at a retirement funded almost entirely by the State Pension, and the gap between that and a comfortable lifestyle is significant.

The Pensions and Lifetime Savings Association estimates a "moderate" retirement costs about £31,300 a year for a single person. That's a £20,000 annual shortfall that needs to come from somewhere. The earlier you start building a pot to fill that gap, the smaller the monthly contribution needs to be.

Common Excuses (and Why They Don't Hold Up)

"I'll start when my business is more established"

Understandable, but dangerous. There's always a reason to wait — a quiet period, an investment in the business, a tax bill to pay. Waiting for the "right time" often means never starting at all. Even small contributions during lean years are better than nothing.

"I'm young — I've got decades"

True, and that's exactly why now is the best time. Those decades are your biggest asset. Every year you delay costs you disproportionately in lost compound growth.

"I'd rather invest in my business"

Your business is important, but it's not a pension plan. Businesses can fail, markets can shift, and you can't guarantee your business will provide for you in retirement. A pension is a separate, protected pot that's ring-fenced for your future. It's not either/or — it's both.

"Property is my pension"

A common plan, but a risky one. Property can lose value, maintenance costs eat into returns, and selling a house to fund retirement isn't always straightforward (especially if you're still living in it). Property can be part of a retirement strategy, but it shouldn't be the whole thing.

"I don't understand pensions"

Fair enough — pensions can feel complicated. But the basics are straightforward: you put money in, the government tops it up with tax relief, it grows over time, and you draw it in retirement. A SIPP gives you the most control, but even a simple personal pension works well.

You don't need to be a financial expert. You just need to start.

A Practical Plan for Getting Started

Here's a step-by-step plan that works regardless of your age or income:

Step 1: Work out what you can afford

Look at your monthly income and expenses. If you use Accounted to track your sole trader finances, you'll already have this information at your fingertips. Even £50 a month is a solid starting point.

Step 2: Open a SIPP or personal pension

This takes about 20 minutes online. Choose a low-cost provider — Vanguard, Fidelity, and AJ Bell are popular choices. You don't need to be a stock-picking expert; most providers offer simple, diversified funds that do the hard work for you.

Step 3: Set up a regular contribution

A standing order on the day after your most reliable income arrives works well. Treat it like a bill — pay your pension before you spend on anything discretionary.

Step 4: Invest the money

Don't leave it sitting in cash. Choose a diversified fund (a global equity index tracker is a solid default) and let it do its thing. You can adjust your strategy over time as you learn more.

Step 5: Increase gradually

Each year, try to increase your contribution — even by £10 or £20 a month. As your business grows, allocate a percentage of any income increase to your pension. Aim for 12-15% of income as a long-term target, but don't let the "ideal" be the enemy of the "good enough."

Step 6: Claim your tax relief

If you're a basic-rate taxpayer, this happens automatically. If you pay higher or additional-rate tax, make sure you claim the extra relief on your Self Assessment return. Penny in Accounted can flag this for you.

What If You're Starting Late?

If you're reading this in your 40s or 50s, don't panic — and don't give up. Starting late is infinitely better than not starting at all.

Some strategies for catching up:

Maximise your annual allowance. You can contribute up to £60,000 per year (or 100% of earnings, whichever is lower) with tax relief.
Use carry forward. If you've had unused allowance in the last three years, you can carry it forward and make larger contributions now.
Consider your State Pension. Check your National Insurance record for gaps — filling them can be incredibly good value and boost your guaranteed retirement income.
Adjust your expectations realistically. You might not reach the "comfortable" retirement standard, but moderate is achievable with discipline.
Delay retirement slightly. Even two or three extra years of contributions and growth can make a meaningful difference to your pot.

The Cost of Waiting — One More Example

Let's hammer the point home with one final example.

Alex starts contributing £300/month at age 25. By 67, with 5% annual growth, the pot is worth approximately £510,000.

Jordan decides to wait until 35 and then contributes £500/month — considerably more per month than Alex. By 67, with the same 5% growth, Jordan's pot is worth approximately £430,000.

Jordan contributed more per month, for fewer years, but still ends up with £80,000 less. That's the price of ten years' delay. The lesson is clear: time in the market beats almost everything else.

One Final Thought

The self-employed have more financial freedom than most people — you control your income, your expenses, and your time. But that freedom comes with responsibility, and pension saving is one of the most important responsibilities you have.

You don't need a perfect plan. You don't need a huge income. You don't need to understand every detail of pension legislation. You just need to start. Open a SIPP, set up a standing order, and let time and compound interest do the rest.

Your 67-year-old self is counting on you.

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