How much should you I pay into my pension?

Joining a pension scheme is an important first step on the road to preparing for retirement. And it’s vital. Fortunately, it’s now a legal requirement for your employer to offer you one, if you’re eligible, meaning you’re able to start contributing from your first payday. If you’re just starting out in the world of work, retirement might feel like a long way off, but don’t let that fool you. Early preparations could put you in a great position, even if it’s decades until you’re able to retire.

It can be uneasy and unsettling reading when you work out how long it might take you to save for retirement. Luckily, there are plenty of systems in place to help you save and make the most of your pension pot. Your workplace pension, State Pension and other savings are just some of the ways you can prepare for retirement. However, you’ll need to understand these in order to take full advantage of them.

Right now, you’re probably asking, ‘How much should I pay into my pension to achieve a comfortable retirement?’. Working out exactly how much to put into a pension is different for each of us. It can depend on the age you start saving for your pension, the type of scheme you’re a member of, and how long you expect to be retired for. All of these, plus your lifestyle and family needs, will help you work out how much income you’ll need to live.

How much income do you need for retirement?

As a rule, think about how much income you need to live comfortably today; you should be aiming for something similar when you reach pensionable age. Of course, this will all depend on your lifestyle choices too. 

For a regular household, two people need a minimum income of £21,600 (according to the Retirement Living Standards in 2025). If there’s more of you, you’ll need to adjust this. As a single-person household, you’ll want to aim for a little more income to account for bills, mortgage or rent costs and general living. Therefore, the minimum suggested by the Retirement Living Standards is 2025 was £13,400. As a rule of thumb, consider the costs you might have to pay when you retire and the essentials you can’t live without. These might include:

• Payments towards your home, such as rent or mortgage, upkeep and maintenance.
• The expense of owning a car, like your MOT, tax (VED), car insurance and servicing.
• The need for clothing and personal care items, such as new shoes or haircuts.
• Your weekly food shop and dining out opportunities.
• Any holidays or leisure activities you want to plan.
• Presents for family members or friends.
• Any charitable donations you want to make.
• Any standing orders you have set up that doesn’t cover the above.

Data taken from Retirement Living Standards produced by Pensions UK.

As a minimum, your pension should cover the costs of all your needs with a little bit left over for leisure. A good pension amount will guarantee a bit more security and flexibility from your income, enabling you to spread it out, spend some and put some aside. If you’re looking for a comfortable pension, it will give you far more freedom with your money so you can enjoy some additional luxuries.

A financial adviser can offer guidance on how to build up your pension, as well as places you can invest your pension, such as an annuity. They will also look at how you spend money, outstanding debt balances and lifestyle choices to determine how much income you’ll need and what you can afford to put away.

At what age should I start paying into a pension?

The age you can start a pension depends on who sets it up and the type of pension you choose.

• Someone else can pay into a personal pension for you at any age.
• From age 16, you can opt into your employer’s workplace pension scheme.
• You can start your own personal pension once you turn 18.
• From age 22, if you have a job earning over £10,000 a year, your employer must enrol you in their pension scheme and contribute to it. You can also ask to join if you earn £6,240 or more.

Because of this, many people end up with multiple pensions as they move between jobs. The good news is you can usually consolidate your pensions to keep things simple.

How do you make pension contributions?

Pensions generally fall into two main categories – workplace and personal schemes. If you’re eligible for a workplace pension, your employer will automatically enrol you. Of course, you can opt out of your workplace pension, but this means both you and your employer stop paying any contributions. Alternatively, you can invest in a personal pension scheme.

1. Workplace pension schemes

These are arranged by employers and allow you to make contributions automatically. You agree for a percentage of your salary (at a minimum of 5% of which 1% is made up of tax relief) to be placed in your pension pot when you get paid. The main benefits of workplace pensions are the tax relief they offer, and the fact your employer is required to make contributions too (at a minimum of 3%).  

To be auto-enrolled in a workplace pension scheme, you need to fit into the following criteria:

• Be classed as a worker.
• Be aged between 22 years old and your State Pension age.
• Earn a minimum of £10,000 a year.

It’s worth remembering that you can have multiple workplace pensions, particularly if you’ve moved companies a few times. When you do so, these don’t automatically get merged into your new pension pot. Consolidating your pensions can help here as you can bring all your pensions into one place. 

It’s also important to note that you can opt out of your workplace pension, but this will come at a cost. As you won’t be paying into your pension monthly, your employer won’t be either.

2. Personal pensions

Personal pensions are another way to ensure a steady income when you retire. You can set up a personal pension yourself, with the option to make regular contributions or occasional lump-sum payments. They’re particularly popular with self-employed people who can’t access a workplace scheme. It might even benefit those with a workplace pension as well, especially if you can afford to put more away. 

Your savings are invested in assets like shares, in a bid to increase your returns. Specialist schemes such as self-invested personal pensions (SIPPs) offer you more control over these investments, meaning you can choose the level of risk.

Deciding your contributions

How much should you pay into your pension? It’s worth deciding what is feasible for you and your circumstances. For 2025 retirees, the Retirement Living Standard estimates a single person would need a minimum of £13,400 to live on and a couple would need a minimum of £21,600 to live on. You can calculate how much you’ll need to save into your pension with Money Helper’s pension calculator.

If you’re considering an annuity, our annuity calculator can also help you estimate the monthly income you could receive using the information you provide. It’s based on today’s annuity rates, so the estimate is as up-to-date as possible.

With a workplace pension, both you and your employer will need to make minimum contributions. This figure is determined by the government and can change from one financial year to another. Under the current rules, employers are required to automatically enrol you into their pension plan, so long as you meet certain criteria. As a rule, you won’t be able to pay less but you can contribute more. You may also be able to boost your contributions by using a salary sacrifice scheme. You’ll need to check with your employer if you can do this, of course.

Once enrolled, you’ll have to make a minimum monthly contribution worth 4% of your qualifying earnings, with 3% then added by your employer. Another 1% comes from tax relief, leading to an 8% contribution overall. These minimum contribution rates apply to anyone earning between £6,240 and £50,270.

Whether you have a workplace or personal pension, the important thing to remember is that minimum contributions are only a starting point. Think of them as a useful foundation which can be built upon to meet your specific retirement goals. It’s just a case of working out your optimum contribution rate and getting in touch with your pension provider to change the amount you’re putting away. A financial adviser can also help you work this out, meaning you can get the most out of your pension when you retire.

How much should I pay into my pension if I'm self-employed?

How much you contribute to your pension ultimately depends on your personal finances. If you’re self-employed, there are a few general rules of thumb that can offer helpful guidance:

• The half-your-age rule.
• The two-thirds rule.

Half-your-age rule

The half-your-age rule works like this: Take your age and divide it by two. The result, expressed as a percentage, is the proportion of your pre-tax salary you should aim to contribute to your pension each month.

For example, if you’re 30, that’s 15%. On a £40,000 salary, this would mean contributing around £500 a month.

This approach can be harder to apply if your income isn’t fixed. This is where the second rule comes in.

The two-thirds rule

This is a rough guide to how much you might need to pay into your pension to support a comfortable retirement. The idea is to aim for an income of around two-thirds of your current earnings to maintain a similar lifestyle. For example, if you earn £40,000 a year, you’d be aiming for about £26,400 a year (before tax) in retirement.

Over a 20-year retirement, that would mean a total pension pot of roughly £528,000 (£26,400 x 20). From there, you can estimate how much you’ll need to save each month and year, taking into account factors like your age, current pension value, investment growth and tax relief.

These rules are useful as a starting point if you’re self-employed. But your own circumstances matter most, such as housing costs, debts and long-term goals.

How much should you pay into my pension? Key considerations

Many experts believe your ideal pension contribution is determined by your age. They suggest halving the age you are when you join a pension scheme – and contributing that percentage of your pre-tax wage.

Others have encouraged workers to build a retirement pot worth 10 times their average career salary. There’s also a theory that putting away 12.5% of your monthly pay is a useful benchmark. With inflation and other raising costs, you might not be able to achieve this consistently. That’s why it’s always worth speaking to a financial adviser too.

Essentially, deciding how much to put into a pension also comes down to:

• Your desired retirement lifestyle: A schedule packed with holidays and socialising will mean you need a much bigger pension pot than a much calmer daily routine.
• How long you expect to be retired: Setting a target retirement age should help to focus your pension calculations. We hope you live a long and healthy life, which could mean you’d be relying on your pension for over 30 years if you retire at State Pension age. You’ll need to think about how this can last.
• Expenses you’re likely to face in later life: Medical fees and care costs are among the additional expenses worth budgeting for. Likewise, if you have to move to a new property or consider the care requirements for other family members.
• Your other sources of income: Think about how the State Pension, property, assets and other investments, such as annuities, could bolster your retirement income.
• More pressing financial concerns: You may want to prioritise paying off debts with high-interest rates before raising your pension contributions. Other goals, such as buying a home, might also take precedence at different life stages.

How much should you contribute to your pension each month?

This depends on how much pension income you need in retirement. Ideally, you’ll be able to contribute the minimum requirements into a workplace pension each month from the age of 22 all the way until you reach pensionable age. You can pay up to your annual allowance into your pension, after this point you may be taxed.

Whilst your personal circumstances might change over time, it’s worth speaking with a financial adviser to see how much more you can contribute.

How much can you pay into your pension?

Along with lifestyle and financial factors, it’s worth researching the tax allowances that apply to pension contributions. They may affect how much you can pay into a pension each year and include:

• The annual allowance. Currently set at £60,000, this is the total amount you can contribute to a pension each financial year before tax becomes payable. You may find your allowance is lower than £60,000 if you receive a large income or have flexibly accessed a pension. If you want to contribute more than the annual allowance, it may be possible to utilise any unused allowance you have remaining from the previous 3 tax years.

How can you increase your contributions?

Follow these tips to boost the amount you’re putting into your pension:

• Don’t put off joining a scheme. The earlier you start saving, the better, as your investments will have longer to grow.
• Trim your spending. Reduce the amount you spend on subscriptions, fancy coffees and eating out – and save the spare cash through your pension instead.
• Make the most of pay rises. Consider increasing your contributions each time you receive a salary increase.
• Read your annual statements. Keep a close eye on any income projections sent by your pension provider to ensure you’re on track.
• Keep an eye on other workplace pensions. If you spent some time job-hopping, you might have a few workplace pension pots to monitor. Consolidating your pensions can help you to bring all of these pensions together into one place, if that’s the right decision for you. These will give you a clearer picture overall about how your pension is doing.
• Try a pension calculator. Our annuity calculator gives you an estimate of what your monthly income could be from your pension savings. Also, Money Helper can give you an idea of how much you’re likely to receive in retirement – and the amount you need to save.

Take a look at the bigger picture with help from our retirement advice service. Our friendly advisers can help you get the most out of your pension savings. Request a call back today to get your pensions ready for the retirement you want to enjoy.

How much should I pay into my pension FAQs

You may have lots to ask about how much you should pay into your pension to support a comfortable retirement. Here are some of your most frequently asked questions:

How much should I pay into my pension each month?

The right amount to invest depends on your current circumstances and the type of retirement you want. If you’re unsure how much to save, the Retirement Living Standards website is a helpful place to start.

What pension contributions are covered by the annual allowance?

The £60,000 annual allowance can have a bearing on how much you put into a pension. It covers all your private pensions in a given financial year, including any contributions made to defined contribution schemes, plus any defined benefit scheme increases.

Can you pay into a pension if you don’t work?

Yes, you should still be able to make contributions to a personal pension scheme even if you’re not currently employed. These schemes may be an option if you’ve temporarily left work to look after children or care for relatives or are in the process of finding a new job.

What is an annual pension statement?

Your pension provider or employer should send you an annual statement to show the progress of your retirement savings. It normally includes information about the value of your pot and how effectively your investments are performing. You may also get estimates of your future retirement income.

How big should my pension pot be at the age of 40?

Working out how much income you’ll need in retirement makes it easier to judge whether your pension pot is on track at 40. As a guide, the Retirement Living Standards say a moderate lifestyle in the year 2025 cost £31,700 a year . If you receive the full new State Pension (£11,973 a year in 2025/26), your own savings would need to generate roughly £19,727 a year on top.

Can I start saving into a pension if I’m over 40?

Yes, you’re never too old to start saving for retirement. While starting earlier is recommended, reaching 40 with a small or no pension doesn’t mean it’s too late. Planning to retire at the State Pension age could still give you 25 or more years to save and build a comfortable retirement.