How much should you contribute to your pension?

 

A third of people don’t know how much they need to contribute to their pensions every year to create a comfortable retirement, according to a MoneyAge article (11 November 2025).

Striking the right balance with pension contributions is important. Contribute too little, and you could leave yourself short in retirement. If you contribute as much as possible to your pension now, you might miss other goals or place pressure on your day-to-day budget.

So, asking “how much should I be paying into my pension each year?” is sensible.

You might have read answers to this question that apply a general rule to everybody, such as a certain percentage of your income or a target amount you should have at a particular age.

However, the reality is that there isn’t a simple answer that can be applied to everyone. A range of factors, from your current age to your desired retirement lifestyle, will affect how much you need in retirement.

Here’s a step-by-step guide on how to calculate what you may want to add to your pension.

1. Review your current pension and other assets

If you’re already contributing to a pension, or have in the past, gather your statements so you can understand your current position. The savings you’ve already made will act as a foundation for your future contributions.

Don’t forget to check for lost pensions. According to Pensions UK (24 October 2024), as much as £31.1 billion is sitting in unclaimed pension pots across the UK. Take some time to check if you’ve got any gaps – you might find a lost pot that could boost your retirement.

In addition to your pension, you may have other assets you plan to use to fund retirement, such as savings or investments held outside a pension, which you may want to include in this step.

2. Decide when you’d like to retire

When you want to retire will have a direct effect on how much you’ll need to save. If you hope to retire early, keep in mind that you’ll need to create an income for longer, and you may not receive any State Pension until you’ve been retired for some time.

3. Set out your desired retirement lifestyle

To accurately set a pension target, you need to understand what kind of lifestyle you hope to enjoy in retirement. If you’re envisioning plenty of luxury holidays, a new car every few years, and trips with friends, you’ll need to save more than if you’re happy with a more moderate lifestyle.

With a lifestyle set out, you can start to consider how much you’ll need as a regular income to maintain it. Remember to factor in unexpected costs and the effect inflation is likely to have on your cost of living.

With an estimated required annual income, you can work out how much you’ll need in your pension by considering how long you’ll spend in retirement.

It’s wise to look beyond the average life expectancy, as doing so could leave you facing financial difficulty if you live for longer. The Office for National Statistics life expectancy calculator (14 February 2025) suggests a woman aged 65 has an average life expectancy of 88. However, there’s also a 1 in 4 chance she’ll celebrate her 94th birthday.

4. Review how your pension will grow

The good news is you don’t need to contribute the total amount you need to secure your desired lifestyle.

First, your pension contributions benefit from tax relief at your marginal rate of Income Tax.

Assuming you don’t exceed the pension Annual Allowance (£60,000 in 2025/26 or 100% of your annual income, whichever is lower), you’d only need to contribute £80 to increase your pension by £100 as a basic-rate taxpayer. If you’re a higher- or additional-rate taxpayer, the amount you’d need to contribute would fall to £60 and £55 respectively.

Second, your pension is usually invested with the aim of delivering long-term growth.

As you’ll often be investing through a pension for decades, the compounding effect of investment returns can help your pension grow significantly over time.

However, it’s important to note that investment returns cannot be guaranteed.

5. Assess how much your pension contributions need to be

With all this information, you can work backwards to calculate how much you’d need to add to your pension each year to achieve your desired lifestyle.

Using a cashflow model as part of your financial plan can help you bring all this data together and visualise how your wealth might change. For example, you might model how your pension would grow if you increased your contributions by 2% compared to 4%.

You can also model other scenarios, such as the age you’ll retire and changing your income needs.

Regular pension reviews can help make sure you’re on track. The outcomes of a cashflow model cannot be guaranteed, but it can be useful when you’re trying to answer the question “how much should I contribute to my pension?” and others like it.

Work with us to create a retirement plan

Calculating how much you should contribute to your pension each year is just one part of your retirement plan. You might also need to know how the money will be invested when it’s in your pension, or how to access the savings when you’re ready to create an income.

We can work with you to create a complete retirement plan to prepare for the next chapter of your life.

Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The Financial Conduct Authority does not regulate cashflow modelling.