Understanding pension contributions

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A pension can help you save money for retirement in a tax-efficient way. But what’s the maximum pension contribution? And how much can you pay in before you’ll pay tax?

Read our guide to understanding pension contributions so that you can plan for retirement with confidence.

What is a pension and how does it work?

Paying into a pension is a tax-efficient way of investing in your future to fund a comfortable retirement.

There are several types of pensions: workplace pensions, private pensions, and the State Pension. Every contribution you make can increase your pension pot and boost your retirement income to give you the lifestyle you want.

Pensions generally work in the following way:

• You pay into a pension.

• Someone else such as your employer also pays into your pension.

• You benefit from tax relief on your pension contributions.

Unless you are a member of a workplace defined benefit (DB) pension, like any investment, the value of a defined contribution (DC) pension can fall as well as rise and isn’t guaranteed. Ideally, your DC pension pot grows over time, providing you with a comfortable retirement income. Taking retirement and pension advice is a common way of assessing the performance of your DC pension and investments as you get older.

You can normally access your pension or pensions from the age of 55 (rising to 57 from April 2028). In most cases you can take up to 25% as a tax-free lump sum up to a maximum of £268,275. You can withdraw all or some of the remaining money, or continue to pay in. If you keep paying in, the Money Purchase Annual Allowance may apply. There are also rules you will need to be careful about to prevent re-cycling of tax-free cash to boost tax-relief.

Who makes pension contributions?

The type of pension(s) and policy you have determines who contributes to your pension. You’ll typically have one or more defined contribution (DC) pension schemes such as a workplace pension, private pension, or combination of both. You’re also likely to claim the government’s State Pension when you reach the age of 66 (rising to 67 from 2026-2028).

1. Private / personal pensions

It is normally possible for your employer to make contributions to your private pension pot, but it is most likely that only personal contributions will be made if your employer offers a workplace pension scheme. You can decide whether to make regular contributions or pay in as and when you choose. For instance, a self-invested personal pension (SIPP) is a type of personal pension that offers greater flexibility when building your pension pot and is particularly beneficial if you’re self-employed, a business owner, or senior employee and looking to direct your own pension investments. If you’re unsure about your options, you could seek retirement and pension advice to help you plan for the future.

2. Workplace pensions

Your employer normally puts a percentage of your salary into a pension scheme automatically every payday. In most cases, your employer also puts money into the scheme on your behalf to boost your pension pot. If you’re a minimum of 22 years of age and earn at least £10,000 per year, your employer must automatically enrol you in a workplace pension scheme. More details can be found later in this guide.

3. State Pension

What you’ll receive from the government’s new State Pension depends on your National Insurance (NI) contributions. You’ll need to have paid a minimum of 10 years’ NI contribution to claim the State Pension. You’ll only get the full State Pension if you’ve made 35 years or NI contributions.

What’s the maximum pension contribution?

Your pension contributions are unlimited. There is no maximum amount you can pay in each year.

However, the government limits how much you can contribute and receive tax relief before tax charges kick in. This is your ‘annual allowance’. You also won’t be entitled to tax relief on any contributions you make in a tax year if your personal contributions are more than 100% of your annual earnings.

Here’s what else you should know:

• £60,000: The standard annual allowance for pension contributions for the 2025/26 tax year is £60,000, but you may also be able to carry forward unused annual allowance from earlier tax years. This is the total sum of all pensions you’re paying into, and the limit could be lower depending on your personal circumstances.

• £268,275: Most pensions allow you to take up to 25% of the value as a tax-free lump sum. However, the total amount of tax-free lump sums you can take from all your pensions is normally £268,275. This is known as the Lump Sum Allowance (LSA).

• £1,073,100: The Lump Sum & Death Benefit Allowance (LSDBA) refers to the maximum amount of benefits you or your beneficiaries can take from every pension scheme you’re a member of as a tax-free lump sum. This limit may be higher than £1,073,100 if you have a protected allowance.

If you flexibly access your DC pension, for example by taking flexi-access drawdown or by taking an Uncrystallised Funds Pension Lump Sum (UFPLS), the standard annual allowance can be replaced by the government’s Money Purchase Annual Allowance (MPAA) for any future payments made to your DC pension schemes. The current MPAA for the 2025/26 tax year is £10,000 and is applied when you start taking taxable income from your pension, whether through flexible payments or as a lump sum.

What are the maximum workplace pension contributions?

In the UK, there is no maximum limit on the amount an employer can contribute towards an employee’s pension. However, the type ofworkplace pension you’re in determines the amount you and your employer pay towards it. It also depends on whether you’ve been automatically enrolled in a workplace pension scheme or joined voluntarily, also known as ‘opting in’.

Automatically enrolled

All employers must provide a workplace pension, and they must automatically enrol you into the scheme and make contributions if you meet all of the following criteria:

• You’re classed as a ‘worker’ as defined by the government.

• Your annual earnings are at least £10,000.

• You are aged between 22 and the age for claiming State Pension.

• You ordinarily work in the UK.

Your contributions and what qualifies as earnings depends on the pension scheme your employer has selected. In most automatic enrolment schemes, calculations are based on your total earnings between £6,240 and £50,270 per year before tax.

Total earnings include your salary or wages, bonuses and commission, overtime pay, statutory sick pack, and statutory maternity, paternity or adoption pay. It’s important to check with your employer for details about your workplace pension rules.

Voluntarily enrolled

If you’ve voluntarily enrolled in a workplace pension, your employer must make a minimum number of contributions if you earn more than £520 a month, £120 a week, or £480 over a four-week period. If you earn these amounts or less your employer does not have to make any contributions to your pension.

What are the minimum workplace pension contributions?

If you’re paying into a workplace pension, there’s a minimum number of contributions that must be made by you and your employer. This equates to:

• At least 8% of your salary: This is a combination of you and your employer’s contributions. Your employer is obliged to put it at least 3% of your salary, leaving you to pay the remaining 5%.

When you join a workplace pension scheme your take-home earnings will reduce. However, you may be entitled to tax credits or income-related benefits or see an increase in what you already receive. Similarly, any student loan repayments you’re making may also come down.

Your employer may also offer a salary sacrifice, or ‘SMART’ scheme. You’ll agree to your employer paying part of your salary directly into your pension. This could mean that both you and employer will pay less tax and National Insurance.

When did employer contributions start?

The Pensions Act 2008 made it mandatory for employers to make a minimum contribution to employee pension schemes. The Act came into force in 2012 and requires all staff to be automatically enrolled in a pension scheme when they join a business or organisation.

If an employer decides to provide more than the minimum contribution of 5% into an employee’s pension, the employee will only be required to pay the remainder until the minimum contribution threshold is met. 

How much pension will I need to fund my retirement?

Only you can decide how much you’ll need in your pension pot to fund your retirement.This often depends on several factors including:

• When and at what age you want to start drawing your pension.

• Any other income sources, assets, or investments you may have such as annuities.

• The kind of retirement lifestyle you’re seeking.

For a rough estimate of how much money you’ll have when you reach retirement age consider how much money you’re currently saving, how long you have to wait until you retire, the performance of your pensions, and the impact of any pension charges.

As a general rule, the sooner you start paying into a pension the bigger your pot is likely to be. Similarly, the more you pay in the more savings you’re likely to have when you retire, although investments can go up and down in value, so you could get back less than you invest.

You can work out what your pension income is likely to be using our pension annuity calculator.

Do you need help with pension planning?

Whether you’re reviewing your investments or ready to claim your pension, you could benefit from expert pension advice to ensure you’ll get maximum value from your savings. Contact us today.