Pension Contributions

03 October 2025

How much should you pay in?

One of the biggest advantages of pension saving is the generous tax relief you receive on contributions. Understanding how much you can contribute – and when – is crucial for building the retirement lifestyle you want.

That’s why we’ve put together The complete guide to pension contributions – how much you should pay in, when to start, and how to maximise your tax relief so you can start contributing to your pension to get the maximum benefit.

William Stevens

Partner, Head of Wealth Planning

How much can you contribute?

You can contribute up to 100% of your UK earnings or £60,000 per year (whichever is lower) to your pensions for the 2025/26 tax year. Even if you have no earnings, you can still pay in up to £3,600 annually – that is £2,880 from you, with the government adding £720 in tax relief.

The £60,000 annual allowance applies to total contributions from all sources – your personal contributions, tax relief, and any employer contributions combined.

High earners: Tapered annual allowance

If your total income exceeds £260,000, your annual allowance reduces. For every £2 above this threshold, your allowance decreases by £1, down to a minimum of £10,000 for those earning over £360,000.

Capital at Risk

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.

How does tax relief work?

Automatic basic rate relief: All pension contributions automatically receive 20% tax relief. Contribute £800, and it becomes £1,000 in your pension pot.

Higher and additional rate taxpayers: Can claim extra relief through Self-Assessment:

40% taxpayers: Claim an additional 20% relief
45% taxpayers: Claim an additional 25% relief

In this example, you’ll see how Sarah earns £60,000 and contributes £4,000 to her pension:

£4,000 becomes £5,000 with automatic 20% relief
As a higher-rate taxpayer, she claims an extra £1,000 through Self-Assessment
Total tax relief: £2,000 (40% of her gross contribution)

Employed vs self-employed pension contributions

If you are employed

Workplace pensions: Your employer must offer auto-enrolment with minimum 8% total contributions (5% from you, 3% from your employer).

Employer contributions: Always maximise these first—they are free money that can significantly boost your retirement savings.

Additional contributions: You can top up your workplace pension or open a Self-Invested Personal Pension (SIPP) for greater investment flexibility.

If you are self-employed

No employer contributions: You must fund your entire pension from your own earnings, making consistent contributions even more important.

Company directors: If you operate through a limited company, your business can make employer contributions that qualify for Corporation Tax relief while reducing your personal tax liability.

Flexible timing: Unlike employed individuals with fixed monthly deductions, you can contribute when your income allows.

Capital at Risk

How much should you aim to contribute to your pension?

Financial experts recommend contributing around 15% of your gross income throughout your working life, including any employer contributions.

Some advisers suggest contributing half your age as a percentage. At 30, aim for 15%; at 40, target 20%. Plus, starting early can help. Thanks to compound growth, just £200 monthly from age 25 can build a larger pension than £500 monthly from age 40.

Contribution examples by salary

£30,000 salary (15% target = £4,500 annually):

With employer contribution (3%): £900
Your contribution needed: £3,600
After 20% tax relief: £2,880 from take-home pay

£50,000 salary (15% target = £7,500 annually):

With employer contribution (3%): £1,500
Your contribution needed: £6,000
After 20% tax relief: £4,800 from take-home pay

£80,000 salary (15% target = £12,000 annually):

With employer contribution (3%): £2,400
Your contribution needed: £9,600
After 40% tax relief: £5,760 from take-home pay

Carry forward: using previous years' allowances

If you have not used your full annual allowance in previous years, you can 'carry forward' unused amounts from the last three tax years. This is particularly useful for:

Self-employed individuals with variable income
Those receiving bonuses or windfalls
People who started contributing late

Requirements for carry forward:

You must have been a member of a pension scheme in each year you carry forward from
You must use your current year's full allowance first
You need sufficient earnings to support the total contribution

Money Purchase Annual Allowance (MPAA)

Once you start taking flexible benefits from your pension (income drawdown or uncrystallised fund pension lump sums), your future annual allowance reduces to £10,000. This affects:

Future contribution capacity
Carry forward availability
Tax planning strategies

The sooner you optimise your pension contributions, the better

The key to successful pension planning is starting early, contributing consistently, and making the most of available tax reliefs. Even small increases in contributions can have significant long-term impacts through compound growth.

Ready to review your pension contribution strategy? Our Wealth Planners and expert Advisers can help you determine the optimal contribution level for your circumstances and goals.

Our Wealth Planners and expert Advisers can help you determine the optimal contribution level for your circumstances and goals.

Capital at Risk

Balancing pension contributions with other goals

You’ll likely have other goals in mind when financial planning for your future. These could include buying a home or paying off credit cards. You should consider what’s most important to you:

Emergency fund first: Ensure you have around three to six months of expenses saved before maximising pension contributions.
Debt clearance: Pay off high-interest debt (credit cards, personal loans) before increasing pension contributions beyond employer matching.
Property goals: Balance pension saving with house deposits using ISAs for shorter-term accessibility.
Family priorities: Consider education costs and family financial security alongside retirement planning.

Why professional advice makes a difference

Pension contribution planning becomes more complex with higher incomes, business ownership, or approaching retirement. Professional advice can help you:

Optimise contribution timing and tax efficiency
Navigate carry forward opportunities
Choose between workplace pensions and SIPPs
Plan withdrawal strategies to minimise tax
Integrate pension planning with broader wealth management

At Killik & Co, our Chartered Wealth Planners help you maximise your pension contributions within your overall financial strategy. Whether you are starting your career or planning retirement, we provide personalised guidance to ensure your pension works harder for your future.