Pensions for Dummies Migrants

Why this hits migrants harder

Here's a taster. If a British-born person starts work at 20 and puts £200 a month into a pension growing at 10% a year, they'll have £1 million by age 58. They'd have only contributed £90,000 of their own money. The remaining £910,000 is pure “money making more money” — the snowball effect known as compounding.

Now, if you move to the UK as a migrant at, say, age 35, and immediately start putting that same £200 a month into the same fund — by age 58 you'd have about £200,000. Same monthly amount. A fraction of the result. Simply because your money had 15 fewer years to grow.

And here's the part that stings: no one will tell you this. You'd happily assume you're running the same race as your colleagues. But you're both running a marathon — and they started 15 years before you.

So let's talk about pensions.

The three-legged stool

In the early days, you simply worked until you died. At some point, someone decided that was cruel, and the idea of saving for retirement was born. People often picture a good retirement plan as a “three-legged stool” — it stands on three sources of income. Lose one leg and it tips over.

Defined benefit vs defined contribution

At first, companies wanted to look generous and “nice”, so they offered defined benefitpensions. The deal was simple: the company promised to pay you a fixed income in retirement, usually based on your final salary. It was all fine — until people started living much longer. Suddenly companies had this growing mass of former employees on the books, racking up costs, who weren't actively contributing anymore.

There's also the inflation problem. If someone retires on £10,000 a year in 2026, is it fair to still pay them just £10,000 in 2056, when everything costs far more? But if the company keeps raising the pension, who foots that bill? Is it fair to take money from people still working to top up people who've stopped?

Because of all this, almost no companies offer defined benefit pensions anymore. Today you'll only find them in places like the civil service or the NHS.

Almost every company now offers a defined contribution (DC)pension instead — think of it as your own personal pot. You pay in, your employer pays in, and that money gets invested (usually in a mix of shares and bonds). What you end up with at retirement depends on how much went in and how well the investments did — exactly the kind of compounding the charts above show. If the investments do well, you do well; if they don't, you don't. The risk sits with you, not your employer. Almost all new workplace pensions today work this way.

The State Pension — the honest version

You pay for the State Pension through National Insurance (NI) — an extra contribution the government deducts from your wages. Once you reach State Pension age (currently 67), you receive roughly £12,500 a year.

Here's what most people don't realise: you need at least 10 qualifying years of NI contributions to receive anything at all, and 35 yearsfor the full amount. As a new arrival to the UK, you start from zero — which means it takes a full decade of working here before you're entitled to a single penny of State Pension. You can check your NI record at any time on gov.uk.

Here's the uncomfortable truth: the money paid to today's pensioners doesn't sit in a pot with your name on it. It comes straight from the taxes of today's workers. So if we're being really candid, it's probably unwise for anyone under 45 in 2026 to depend on the State Pension — there's a real chance it won't exist in its current form by the time you get there.

Why? The government should have been investing National Insurance contributions over the years and using the growth to fund pensions later. But that's not what happens. Instead, money from new workers pays today's pensioners. And a scheme that pays older members using money from newer members has a name…

A Ponzi Scheme.

And all Ponzi schemes eventually run out of road.

The safest mindset: plan as if the State Pension won't be there. If you do get it when you reach pension age — great, treat it as a bonus. If you don't, you won't be financially devastated.

Auto-enrolment — you're already signed up

Since 2012, employers have had to automatically enrol eligible staff into a workplace pension. You qualify if you're 22 or older (up to State Pension age) and earn at least £10,000 a year — your visa status doesn't matter. You're in by default.

You can opt out, but if you do, you lose your employer's contribution. That's free money you're walking away from.

The minimum that goes in is 8% of your qualifying earnings— the slice of your pay between £6,240 and £50,270 for 2025/26. At least 3% comes from your employer and 5% from you, and part of your share gets topped up by tax relief from the government. These rates haven't changed since April 2019. You normally can't touch this pot until age 55 (rising to 57 in April 2028).

What the law says now

The Pension Schemes Act 2025(sometimes called the 2026 Act, as that's when it takes effect) doesn't force new sign-ups — instead it tries to make existing pensions work harder and deliver better value. The main points:

• Consolidation into “megafunds”: from 2030, large DC default funds will need to hold at least £25bn in assets. Bigger funds can invest more cheaply and efficiently.
• Automatic small-pot consolidation: dormant pots of £1,000 or less will be automatically combined, so people stop losing track of old pensions when they change jobs.
• A “value for money” framework (from 2028):pension schemes will have to prove they're delivering good returns for the fees they charge.

The government estimates these changes could leave a typical earner around £29,000 better off at retirement. There's also the Pensions (Extension of Automatic Enrolment) Act 2023— expected to lower the enrolment age from 22 to 18 and count contributions from the very first pound you earn. It has passed, but the start date hasn't been confirmed yet.

What if you leave the UK?

Your workplace pension stays yours regardless of where you end up. You can leave it invested and draw it later from abroad, or — with regulated advice — transfer it to a Qualifying Recognised Overseas Pension Scheme (QROPS). Transfers can carry charges and sometimes a 25% overseas transfer charge, so get proper advice before doing anything.

You can also claim your UK State Pension from overseas, but it only rises each year if you live in the EEA, Switzerland, or a country that has a UK social-security agreement. Anywhere else, it's frozen — you receive whatever amount you were first paid, with no annual increases, no matter how much the cost of living goes up.

Shine your eyes

It's not all sunshine and unicorns. Pension pots hold enormous amounts of money — so much that everyone wants a piece of the action, including some very unscrupulous people.

I once took a call from someone who offered to increase my pension earnings and sort out my tax affairs in one go. He'd move my pension into a fund he personally managed — all I had to do was pay him an annual management fee of 2%.

First rule: never hand your pension over to some random person on the internet. Always go for properly regulated companies, or simply stick to the pension your employer provides.

Second: 2% sounds tiny. It isn't.Remember our 20-year-old putting in £200 a month? With a 2% yearly management fee, they'd end up with £600,000 instead of £1 million. That one small-sounding percentage quietly swallows £400,000 over a working life.

And here's the irony — a 2% fee might be worth it if the fund manager were doing something extraordinary with your money. In practice, they'll almost certainly just put you into a standard index or tracker fund that passively follows the market. Something you can do yourself, for a fraction of the cost.

One more thing: every so often the government eyes up pensions as a way to fund its own plans. A good example — the current government has compelled pension providers to offer products that invest in certain riskier UK home-grown projects. On the surface that sounds harmless enough, but when you drill into it: if you're being asked to put money into riskier investments, you should be getting higher-than-average returns to compensate for that risk. And beyond that, your pension contribution is your money — the government shouldn't be deciding how it gets invested.

Even so, the pros easily outweigh the cons. It's still very much worth paying into your pension.