How much should I contribute to my pension?

10 September 2025

Contributing 15% of your gross income throughout your working life is a widely recommended target
Start early to benefit from compound growth - even small amounts can make a significant difference
Maximise employer contributions first, then consider additional voluntary contributions
Higher-rate taxpayers can claim up to 45% tax relief on pension contributions
Balance pension saving with other financial priorities like emergency funds and house deposits

The amount you should contribute to your pension depends on your age, income, and retirement goals. However, starting early and contributing consistently can significantly impact your financial security in retirement.

William Stevens

Partner, Head of Wealth Planning

Why it pays to start early

Starting your pension contributions early is one of the most powerful ways to build retirement wealth. With compound growth, contributions made in your twenties and thirties can outperform much larger contributions made later in life.

Consider this example: Sarah starts contributing £200 per month to her pension at age 25. By age 65, assuming 5% annual growth and 20% tax relief, her pot could be worth approximately £420,000. In contrast, if Tom waits until age 40 to start contributing the same amount, his pension pot would be worth around £185,000 by age 65 - less than half of Sarah's total.

Small amounts given time to compound can easily outperform larger sums over much smaller periods. When building retirement savings, time is your most valuable asset.

The 5% growth figure shown is for illustrative purposes only. It is not a reliable indicator of future performance, which may be volatile and inconsistent. As with all investments, the value can fall as well as rise, and you may not get back the amount you originally invest.

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Please be aware that the value of your investments may fall as well as rise. The content of this blog post reflects our current understanding of UK legislation and only impacts those within the UK tax system. Tax treatment depends on personal circumstances, and the rules may be subject to future change.

Understanding the UK auto‑enrolment rules

All eligible UK employees are automatically enrolled into their workplace pension scheme. The current minimum contribution rates are:

Total contribution: 8% of qualifying earnings
Employee contribution: 5% of qualifying earnings
Employer contribution: 3% of qualifying earnings

Qualifying earnings typically include salaries between £6,240 and £50,270 for the 2025/26 tax year. However, these minimum rates are often insufficient for a comfortable retirement.

Auto-enrolment applies to employees aged between 22 and State Pension age who earn more than £10,000 per year. If you are not automatically enrolled, you can opt in to your workplace scheme or set up a Self-Invested Personal Pension (SIPP).

Couple looking at each other with laptop

The 15% guideline

The rule of thumb recommends you should aim to save 15% of your pre-tax income throughout your working life. This includes both your contributions and any employer contributions you receive.

For example, if you earn £40,000 per year, a 15% total contribution would equal £6,000 annually, or £500 per month. If your employer contributes 3% (£1,200), you will need to contribute 12% (£4,800) personally to reach the 15% target. And, if you start contributing at age 25 and retire at age 65 (that is 40 years of saving), with your pension growing at an average annual rate of 5%, your final pension pot at retirement would be approximately £724,800.

Applying the 4% withdrawal rule, you could sustainably withdraw 4% of your pension pot each year at retirement. This would give you an annual retirement income of £28,992. This figure is close to the income you earned during your working life and, especially when combined with your State Pension and any other savings, can provide a comfortable lifestyle in retirement.

This guideline provides a solid foundation for retirement planning, though your individual circumstances may require adjustments.

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Age-based approaches

Another popular rule suggests contributing half your age as a percentage of your salary. Under this approach:

At age 30: Contribute 15% of your salary
At age 40: Contribute 20% of your salary
At age 50: Contribute 25% of your salary

This escalating approach recognises that people typically earn more as they progress in their careers and may need to catch up on earlier under-saving.

Some financial planners also use savings-multiple targets, suggesting you should aim to have accumulated a pension pot worth 10 times your final salary by retirement age.

Monthly contribution examples

Here are practical examples showing what different contribution levels mean in real monthly terms.

£40,000 Annual Salary:

10% total contribution: £333 monthly (£67 employee + £100 employer + £166 tax relief)
15% total contribution: £500 monthly (£300 employee + £100 employer + £100 tax relief)
20% total contribution: £667 monthly (£467 employee + £100 employer + £100 tax relief)

£80,000 Annual Salary:

10% total contribution: £667 monthly (£467 employee + £200 employer + tax relief)
15% total contribution: £1,000 monthly (£640 employee + £200 employer + £160 tax relief)
20% total contribution: £1,333 monthly (£933 employee + £200 employer + £200 tax relief)

£120,000 Annual Salary (Higher-rate taxpayer):

10% total contribution: £1,000 monthly (£600 employee + £200 employer + £200 tax relief)
15% total contribution: £1,500 monthly (£900 employee + £200 employer + £400 tax relief)
20% total contribution: £2,000 monthly (£1,200 employee + £200 employer + £600 tax relief)

Tax relief significantly reduces the actual cost of pension contributions, particularly for higher-rate taxpayers.

Maximising employer match and tax benefits

Is your employer fully matched?

Your priority should always be maximising any employer pension contributions that are available to you. This can dramatically boost your retirement savings.

Many employers offer contribution matching beyond the minimum 3% requirement. For example, some might match employee contributions up to 6% or even 10% of their salary. Check your employee handbook or speak to HR to understand your scheme's full benefits.

Once you have maximised employer matching, you can consider making additional contributions to your workplace pension or setting up a SIPP for greater investment flexibility.

Understanding tax relief

Pension contributions receive valuable tax relief that effectively reduces the cost of saving for retirement:

Basic rate taxpayers (20%): Receive 20% tax relief automatically
Higher rate taxpayers (40%): Can claim an additional 20% relief through Self-Assessment
Additional rate taxpayers (45%): Can claim an additional 25% relief through Self-Assessment

For example, a higher-rate taxpayer contributing £1,000 to their pension receives £200 in automatic tax relief, and can claim an additional £200 through Self-Assessment - making the actual cost just £600.

It is important to remember that whilst pension contributions receive generous tax relief, pension withdrawals in retirement are subject to Income Tax at your highest marginal rate (except for the 25% tax-free lump sum).

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How to balance priorities

Pension saving should fit within your long-term financial plans. Consider these priorities:

First, establish an emergency fund. Ensure you have three to six months' worth of expenses saved before making any large pension contributions.
Pay off credit cards and personal loans before increasing pension contributions, as the interest saved typically exceeds investment returns.
Balance pension savings with any property goals you might have. Consider using an ISA for shorter-term savings whilst maintaining steady pension contributions for long-term wealth building.
Find a sustainable contribution level that allows you to enjoy life today whilst securing your future.

Remember that pension savings are typically locked away until age 55 (rising to 57 in April 2028), so maintain accessible savings for unexpected expenses.

How Killik can help you stay on track

At Killik & Co, we understand that pension planning can feel overwhelming. Our experienced Wealth Planners work with you to create a personalised retirement strategy that balances your current needs with future goals.

We offer comprehensive pension planning services, including:

Annual pension reviews and contribution optimisation
SIPP management with access to diverse investment options
Tax-efficient wealth planning strategies
Pension consolidation to simplify multiple pension pots

Our team of Wealth Planners can help you determine the right contribution level for your circumstances and adjust your strategy as your life evolves.

FAQs

Is it better to contribute more to my pension now or later?

Starting early is almost always better due to compound growth. Even small contributions in your twenties can outperform larger contributions made later. However, if you have received a pay rise or bonus, increasing contributions at any age can significantly improve your retirement prospects.

How much should I pay into my workplace/company pension?

At a minimum, contribute enough to receive the full employer match. Beyond that, aim for a total contribution (including employer contributions) of around 15% of your gross salary. Higher earners may need to contribute more to maintain their lifestyle in retirement.

Will contributing more now mean I have enough for retirement?

This depends on your target retirement income and lifestyle. A good rule of thumb is aiming to replace 60-70% of your pre-retirement income. Use our compound growth calculator to model different scenarios and see how your contributions might grow over time.

Should I prioritise pension contributions or saving for a house deposit (e.g. ISA)?

Consider your personal priorities and timeline. By contributing enough to your pension to receive full employer matching, you can then split additional savings between pension contributions and ISA (Individual Savings Accounts) savings for your house deposit. The tax relief on pension contributions often makes them very attractive, but property ownership provides different benefits.

What are the tax benefits of contributing to a pension?

Pension contributions receive tax relief at your marginal rate (20%, 40%, or 45%), and investments grow tax-free within the pension wrapper. You can also take 25% of your pension pot tax-free when you retire, with the remainder subject to Income Tax.

How will my pension withdrawals be taxed in retirement?

You can take 25% of your pension pot as a tax-free lump sum. The remaining 75% is subject to Income Tax at your marginal rate when withdrawn. This could be beneficial if you are in a lower tax bracket when you retire.

What is the maximum amount you can contribute to a pension?

The annual allowance for the 2025/26 tax year is £60,000, or 100% of your UK relevant earnings if lower. High earners with 'adjusted income' over £260,000 face a tapered annual allowance that can reduce to as low as £10,000. This can be quite complicated so we recommend seeking advice if you are tapered.

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Here is how we can support your pension planning journey

Personalised contribution strategies: Our Wealth Planners assess your current financial situation, retirement goals, and tax position to determine the optimal contribution level for your circumstances, ensuring you maximise both employer matching and tax relief opportunities.
Award-winning SIPP management: Take greater control over your pension investments with our Self-Invested Personal Pension (SIPP), offering access to a diverse range of investment options and the flexibility to adapt your strategy as your needs change throughout your career.
Pension consolidation expertise: Simplify your retirement planning by bringing together multiple pension pots from previous employers into a single, well-managed SIPP, providing greater transparency and potentially better investment opportunities.
Ongoing advice and reviews: Your pension strategy should evolve with your life. We provide regular reviews to ensure your contributions remain on track, adjusting for salary changes, life events, and shifting retirement goals.

Holistic wealth planning: We help you balance pension saving with other financial priorities, from emergency funds and house deposits to tax-efficient ISA investments, ensuring your pension contributions fit seamlessly within your broader financial plan.

Starting early and contributing consistently are key to building retirement wealth, but having the right guidance makes all the difference. Our team combines decades of experience with a deep understanding of pension rules, tax relief, and investment strategies to help you make informed decisions about your financial future.

Take control of your pension planning with Killik & Co

Determining how much to contribute to your pension is a crucial financial decision that impacts your entire retirement. While the guidelines and examples in this article provide a solid foundation, your personal circumstances require a tailored approach that evolves with your life.

At Killik & Co, we understand that pension planning is not a one-size-fits-all solution. Our experienced Wealth Planners will help you navigate these important decisions with confidence.