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How much should I be paying into my pension?

Tim Heming
Written by  Tim Heming
Collette Shackleton
Reviewed by  Collette Shackleton
5 min read
Updated: 21 Feb 2025

Planning for a comfortable retirement? Our guide covers pension contributions work and how much you should contribute to your pension.

Key takeaways

  • A common rule of thumb is to half the age of when you first started a pension and save that percentage of your salary each year

  • Workplace pension contributions with employer contributions are mandatory if you're over 22 and earn more than £10,000

  • Pension contributions benefit from tax relief, meaning every £40 you contribute could grow to £80 in your workplace pension pot 

Man using laptop

What are pension payment contributions?

Pension payment contributions are the amount you pay into your pension fund. Typically, if it is a workplace pension, you'll make monthly payments out of your salary.

Or if you're paying into a private or personal pension you are likely to make regular, often monthly, payments into the pension scheme.

Sometimes you might make lump sum payments into your pension or a combination of regular and lump sum payments.

The reason it's called a contribution is that you're not the only one paying into your pension pot. If you're employed, then your employer is likely to also pay contributions into your workplace pension.

Not only that, but the Government also contributes in the form of tax relief – this is the case for most types of pension.

Once you've made your monthly pension contribution, your pension provider will invest this money on your behalf.

With workplace schemes you’re likely to have some degree of choice about how and where your pension cash is invested, depending on the scheme. There may be a range of investment funds to select, for example.

How do contributions on workplace pensions work?

Workplace pension contributions are a mixture of employee, employer and government contributions through tax relief.

If you're over the age of 22, earning more than £10,000 per year and working in the UK, your employer must automatically enrol you into the company's workplace pension scheme.

You have the option to opt-out if you want to, but it’s a legal requirement for employers to enrol you. If you choose to opt-out, you’ll lose the contributions that your employer makes.

What are minimum pension contributions?

The minimum total contribution for auto-enrolment is 8% of qualifying earnings, with at least 3% from the employer and the remaining 5% from your salary.

Employee contributions benefit from tax relief, effectively reducing the net amount deducted from your wages.

For example, if your gross contribution is £40, you’ll receive £10 in tax relief (assuming a basic tax rate of 20%). The employer adds £30, resulting in a total of £80 added to the pension pot.

It's important to note that the exact figures can vary based on individual circumstances, tax rates, and specific pension scheme rules.

Pension contributions for the self-employed

Just because you’re self-employed doesn’t mean you can’t contribute to a pension. And arguably it’s even more important that you do so, given that there’s no employer to make contributions on your behalf.

With that in mind, the onus is on you to contribute more from your wages/income to ensure you can cover the cost of your lifestyle in retirement. You can also still benefit from tax relief from the government.

Pension options for self-employed people include self-invested personal pensions (SIPP) and stakeholder pensions.

How does tax relief affect workplace pensions?

Tax relief is available on your workplace pension on contributions up to 100% of your salary (up to a maximum of £40,000 per tax year) and can be applied automatically by your pension provider in one of two ways:

  • Your employer may take pension contributions out of your pay before deducting Income tax (known as salary sacrifice)

  • If your contributions are paid after tax, then your pension provider will claim it as tax relief and add it to your pension pot. This is known as ‘tax relief at source’ and is common for private pensions that you have set up yourself, outside of a workplace pension

How do contributions on private pensions work?

You can make contributions into a private pension in any way you choose – subject to the pension provider's terms and conditions.

This might be regular monthly contributions, via Direct Debit, or one-off lump sums – or a combination of the two.

Do I receive tax relief on my private pension contributions?

You’re eligible for government tax relief on contributions to a private pension, as well as a workplace pension. Tax relief is paid at your highest rate of income tax, so 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers.

Your pension provider will claim tax relief at 20% on your contributions in a private pension and add it to your pension pot automatically.

Higher and additional rate taxpayers will then have to claim the extra tax relief they are entitled to through a self-assessment tax return each year.

How much should I contribute to my pension?

There’s no one size fits all approach to how much you should contribute to your pension. However, you should think about your desired lifestyle and living costs for when you retire. This will give you an indication of the income you’ll need.

Everyone’s circumstances are different, but here are some common guidelines for pension contributions:

A common rule-of-thumb is to halve your age at the time you start saving for your pension. Aim to use that number as the percentage of your salary to save each year.

For example, if you started saving into your pension at 20, you should be saving 10% of your annual income into your pension. If you start saving into your pension at 40, this increases to 20%.


Another rule-of-thumb is that your income post-retirement should be between half and two-thirds of your final salary, depending on your circumstances.

Within the pensions industry, it is sometimes quoted that a good pension pot will be around 10 times your final salary.

This can sound like a big number, but the earlier you start putting money into your pension the longer your money will be invested and compounding – and hopefully have time to grow.


It is likely many people will be able to make bigger pension contributions towards the end of their career, as salaries are likely to be higher and other financial commitments, such as a mortgage, are smaller or paid off.

To get a clearer idea of what you might need to save now for a comfortable retirement read our retirement planning guide.

What is the pension annual allowance?

Your annual allowance is the most you can save into your pensions in a tax year (6 April to 5 April) before you have to pay any tax.

The maximum annual tax-free allowance for pension contributions is currently set by the Government at £60,000. This means that you can contribute up to this amount before being taxed. However, you can carry over any unused allowance from the previous three years into any one year.

If you have a very high income, the amount you can save into your pension tax-free each year may be reduced. This applies if you earn over £200,000 and your total taxable income (including pension contributions) is more than £260,000. In this case, your allowance gradually decreases, but it won’t go below £10,000.

What is the pension lifetime allowance?

From 6 April 2024, the Lifetime Allowance (LTA) has been abolished, meaning there is no longer a limit on how much you can save into your pension without facing an extra tax charge.

However, new limits apply to tax-free lump sums you can take from your pension:

This is the maximum amount you can take as a tax-free lump sum from your pension. It is set at £268,275, which is 25% of the previous LTA. Any lump sum withdrawals above this will be taxed at your marginal rate.

This is the total tax-free amount you can take as a lump sum, including tax-free withdrawals made by your beneficiaries if you pass away before 75. It is capped at £1,073,100. Any lump sums above this limit will also be taxed at the recipient’s marginal rate.

Tim Heming
Tim Heming
Personal Finance Expert

Our expert says...

“Saving for a pension might not feel like a priority, and small contributions can seem insignificant, but they add up. Thanks to tax relief and the investment growth, even modest savings can build into a substantial pot over time. The sooner you start, the better, but it’s never too late to make a difference.”

Other useful guides

We have a range of helpful guides and tools to help with your pension planning:

How do I start a private pension?

Setting up a private pension can be quick and simple online. But it is a good idea to take some time to do your research first.

You don’t need a financial adviser or broker to arrange a private pension. But getting expert and impartial advice is a good idea if you're not a confident or experienced investor – although this will come with an added cost.

Compare pension plans with our partner MoneyFarm

We've teamed up with our chosen partner MoneyFarm to help you find the right private pension plan. The service is hassle-free, easy to use and puts you in control of your pensions at all times.

MoneyFarm can help you track down and combine your old pensions (if it's in your best interests), and help you choose the best investment plan for you, using funds from the whole of the market. You will also get your own dedicated pension adviser to answer any questions you have.

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