How much should I pay into a pension?

‘How much should I pay into a pension?’ is a fair question when it comes to retirement planning. And while there is no simple answer, there are a number of broad brush solutions to the problem of saving enough for your later years that can be very helpful to keep you on track.

The financial services industry will almost always tell you to save “as much as possible” into your pension. That is not bad advice. But as humans we like benchmarks, rules of thumb and ways to gauge how far along the right road we are compared to others our age or situation.

You will want your pension contributions to eventually enable you to meet your goals, such as retiring early, or going on exotic holidays once you finish work. But you also need income today. So the starting point is how much money you able to – and happy to – lock up until you can access your pension at a minimum of age 55 (rising to age 57 in 2028).

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You also need to consider how much you already have in a pension, such as a workplace pension, or other assets or income streams that you might use in retirement.

The state pension should provide a foundation for your retirement income - but you do need to save more, whether that’s in a workplace pension or personal pension like a self-invested personal pension (Sipp).

What is a sensible pension contribution?

Most of us are already paying into a pension pot thanks to the auto-enrolment initiative. This requires workers aged between 22 and state pension age to contribute at least 5% of their salary towards their pension, with their employer topping this up by 3%.

This, coupled with the state pension, gives you a strong start to saving for retirement – but it may not be enough on its own.

If you’re self-employed, you’re solely responsible for your retirement nest egg. There’s no employer contribution, so you’ll need to choose a pension provider and start paying in by yourself.

It’s worth taking a minute to think about how much money you might need in retirement.

According to the Pensions and Lifetime Savings Association, a trade body, retirees need an income of £43,100 per year for a "comfortable retirement", which includes some luxuries. For a “moderate retirement”, the annual figure falls to £31,300.

For couples, the joint income required is lower. Couples seeking a comfortable retirement need £59,000 a year jointly, or £43,100 for a moderate one.

The full state pension currently pays £230.25 a week, or £11,973 a year. So, there’s still quite some way to go in terms of paying into a workplace or personal pension to increase that annual income to give you a better quality of retired life.

Some experts recommend that you save up to 10 times your average working-life salary by the time you retire.

So, if your average salary is £35,000, you should aim for a pension pot of around £350,000.

Over the years this might look like:

Another tip is to save 12.5% of your monthly salary. If you’re already saving 8% via auto-enrolment, this would mean paying in an extra 4.5%.

You may find that if you increase your contribution your employer will match it. So if you contribute an extra 3%, your employer will pay in the same amount. This means you’ll have a total contribution of 14%, which is a decent amount to be saving for your retirement.

What is the average pension contribution?

On average, savers put £1,624 per quarter into their pensions in the first half of 2025, compared to £1,677 per quarter during the same period in 2024, according to new data by PensionBee.

The small drop in the figures – based on 286,000 invested PensionBee customers as of 30 June 2025 – may reflect a market settling down, following the higher than usual contributions spurred by the increased pension annual allowance in 2024, Pensionbee said.

Generally, the data suggests savers are holding firm in their pension commitments amid ongoing economic uncertainty. However, figures such as these are nationwide averages and therefore should only be used as a guide rather than a target. Your own personal circumstances and income will determine how much you should put into your pension.

Men contributed an average of £1,845 per quarter, while women contributed £1,347 per quarter – a 27% gap that has shown little movement. This aligns with recent Department for Work and Pensions (DWP) figures, which reveal a 48% gender pensions gap among those approaching retirement.

Male contributions fell 4% year-on-year (from £1,920), whereas female contributions remained largely unchanged (from £1,349). This suggests that women are sustaining their pension contributions, even as financial pressures persist, whereas male contributions may be more responsive to financial circumstances or market conditions, Pensionbee said.

The gap between employed and self-employed savers has narrowed. In the first half of 2025, the self-employed contributed an average of £1,635 per quarter, compared to £1,679 among employed savers – a modest difference of just £44. Contribution levels declined slightly from a 2024 high over the same period, falling 4% (from £1,708) for self-employed savers and 1% (from £1,702) for employed.

Lisa Picardo, chief business officer UK at PensionBee, said: “We can’t allow today’s contribution gaps to become tomorrow’s poverty in retirement. It’s encouraging to see average contributions maintaining 2024’s exceptional levels. But the persistent gender gap in contributions is concerning.

“The fact that male savers consistently contribute over 25% more than female savers reflects systemic inequalities that compound over decades. When women are earning less and taking career breaks for caring responsibilities, lower pension contributions naturally follow.”

The “half your age” pension rule

Another tip sometimes suggested by financial advisers is the 50% pension rule. This is where you aim to contribute half your age when you start saving for retirement as a percentage of your salary when you first put money into a pension.

It benefits pension savers who start saving early in their career - but it can also be handy for those who have left it late, and want to know how much to contribute to try and catch up and still build a meaningful nest egg.

Say you started contributing to a pension at age 22, this means you would need to save 11% a year into your pension for the rest of your working life.

A 45-year-old would need to contribute 22.5% of their salary.

Start early!

Some of the best advice is not to think too much about the exact amount, but just to start paying into a pension pot.

That way you benefit from compound interest - this is the snowball effect where interest is earned upon interest. It enables you to turn small amounts of money saved into a pension early on into a decent sized pot by the time you retire.

Tax relief will boost your pension

It may feel overwhelming to try and contribute half your age, or increase the amount you save beyond the auto-enrolment minimum - or if you’re self-employed, divert some of your precious (and possibly precarious) income into a pension pot.

But don’t forget that the government will reward you for saving into a pension by adding tax relief on top.

Everyone can get tax relief when they pay into a pension, even children and people who aren’t working.

Basic-rate taxpayers benefit from a 20% top-up from the government. In other words, for every £100 that is paid into their pension, the government adds £25, bringing the total contribution to £125.

Higher-rate and additional-rate taxpayers are entitled to higher tax relief, of 40% and 45% respectively.

This pension contribution tax relief is effectively free money from the government, which can turbocharge your nest egg and help you reach your retirement goals.

Salary sacrifice pensions

Another way to get more into your pension is via salary sacrifice. This allows employees to reduce their salary or bonus payments in exchange for increased pension contributions.

Unfortunately the Autumn Budget capped the amount of salary that workers can sacrifice into a workplace pension at £2,000 from April 2029 in a blow for pension savers.

Not every employer offers these schemes, but if yours does, now is a good time to increase your contributions. The new cap does not come into effect for well over a year. This gives workers a unique window to take full advantage of the tax benefits before the deadline.

Salary sacrifice schemes reduce income tax and enable both employee and employer to pay lower National Insurance contributions (NICs), making pension saving even more tax efficient.

Alice Haine, personal finance analyst at Bestinvest, an online investment service, said: “This can be particularly effective for those nearing crucial tax cliff edges where an individual’s marginal rate can jump dramatically.”

This includes employees close to the £50,270 earnings threshold where the higher 40% tax rate kicks in – “they can potentially dip under it by using salary sacrifice pension contributions”, said Haine.

For those nearing the £100,000 threshold, salary sacrifice can help mitigate the unique tax challenge where every £2 of taxable income above £100,000 reduces the personal allowance by £1. Combined with the 40% income tax rate, this creates an effective tax rate of over 60%.

“Salary sacrifice can also be beneficial for those that might lose out on child benefit because their salary is too high,” Haine said.

How much can I put into my pension tax-free?

Each tax year, you can contribute up to £60,000 into a pension and benefit from tax relief.

This is known as the annual allowance. If you are a very high earner, and your annual taxable income exceeds £260,000, you will not be entitled to the full allowance. Instead, it will be reduced by £1 for every £2 of income that you earn over the threshold.

The maximum reduction is £50,000, meaning an annual pension allowance of £10,000 for the highest earners.

For example, if you earn £300,000 per year, then your income is £40,000 over the threshold. This means that £20,000 will be docked from your annual allowance, and your annual tax-free pension limit is £40,000.

Lifetime allowance

Until April 2024 there was a lifetime limit you could build up into your pension, after which you would incur a tax charge. This was known as the lifetime allowance, and it was set at £1,073,100, until it was scrapped.

The lifetime allowance was replaced in April 2024 with the lump sum allowance, which allows you to take 25% of your pension savings tax-free, up to a total of £268,275 across all your pensions.

However, if you hold what is known as ‘lifetime allowance protection’ that is valid on or before 5 April 2024, you may still be able to take a higher tax-free lump sum.

Also introduced in April 2024 was the lump sum and death benefit allowance (LSDBA). This allows tax-free lump sums and death benefits up to £1,073,100, with anything above that amount taxed at your beneficiaries' marginal rates.

Do I pay tax on my pension?

While pension contributions are tax-free for most of your working life, you will likely still need to pay tax when you retire and withdraw your pension.

This is because pension income still registers to HMRC as taxable income, meaning that if you withdraw more than your personal tax-free allowance (usually £12,570) in a year, you will have to pay some of it to the Treasury.

This is set to become far more commonplace thanks to this year’s increases to the state pension.

As the full new state pension has gone up to £11,973 a year, retirees getting this amount are now just under £600 away from maxing out their personal allowance just from the state pension alone.

This now means that receiving £597 from a private or workplace pension or from employment will push retirees past the personal allowance and force them to forfeit a portion of their income to the government.

In the 2024/25 tax year alone, around 350,000 more pensioners will be placed in this predicament according to former pensions minister Steve Webb.

He says this is thanks to “the repeated freezes in the personal allowance for income tax, coupled with a series of significant cash increases in the rate of the state pension”.

While you will have to pay income tax on your pension withdrawals, you will not have to pay National Insurance.

Summary

To help you work out how much you need in a pension there are plenty of online pension calculators.

For example, Moneyhelper’s pension calculator can give you a forecast of your likely pension income, including state pension, workplace pension and any final salary schemes. Unbiased also has a handy calculator.

We will leave you with three tips to help you work out how much you should pay into a pension:

• Think about how much money you’ll need in retirement (how many holidays do you plan to take? Will you have paid off your mortgage? And so on)
• Take into account all your retirement income streams. This includes your state pension, any final salary pensions and buy-to-let income
• Ask your employer if they will match extra pension contributions. If they do, this will boost your pension quicker than just relying on your own contributions.