Wondering whether to increase your pension contributions? Learn how to think about affordability, employer contributions, tax relief and your retirement target.
There is one pension question I get asked in various forms all the time:
"How much should I be paying into my pension?"
And people usually want a percentage.
10%? 15%? Half your age when you started?
There are plenty of rules of thumb floating around the internet.
Some are useful as rough illustrations.
But none of them knows anything about you.
So whenever somebody asks me:
"What percentage should I put into my pension?"
my slightly annoying answer is:
"Enough for what?"
Because asking how much you should put into your pension without knowing what retirement you want is a bit like asking:
"How much petrol do I need?"
Before I answer, it would be useful to know where you're driving.
Start with retirement, not the contribution
The real question isn't:
"What percentage should I pay?"
It is:
"Am I currently saving enough to support the retirement I'm actually aiming for?"
That is a very different question.
One person might want to retire at 60 and travel extensively.
Another might enjoy working until 68 and expect fairly modest retirement spending.
Someone else may already have substantial pensions, ISAs or other assets.
Two people earning exactly the same salary could therefore need completely different pension contributions.
Our Foundation starts contribution planning by bringing together what you already have, what is currently being contributed, the retirement age you are aiming for and the lifestyle you would like those resources to support.
That gives the contribution a purpose.
First, find out what is already going in
This sounds ridiculously obvious.
But before increasing a pension contribution, find out what is happening now.
Look at your payslip and pension statement.
How much are you contributing?
How much is your employer contributing?
How does tax relief work within the scheme?
Are you actually receiving everything you think you are?
Because the amount disappearing from your bank account or payslip is not always the same as the gross amount reaching your pension.
For example, under a standard relief-at-source arrangement, an eligible personal payment of £80 would normally become a £100 gross pension contribution after the provider claims £20 of basic-rate tax relief from HMRC.
Pension tax relief can work differently under other arrangements, including net pay and salary sacrifice, which is why understanding the plumbing matters.
Helpful, pensions, aren't they?
Check your employer contribution
Before doing anything clever, check what your employer offers.
Some employers will contribute more if you contribute more.
Others won't.
So ask your HR department or pension provider:
"If I increase my contribution, will my employer increase theirs?"
Because if additional employer money is available, that deserves to be part of the decision.
A beautifully designed pension app with a lovely graph is nice.
Employer money is generally rather more interesting.
Can you actually afford to pay more?
Pensions are important.
So is being able to pay the electricity bill.
Money paid into a pension is primarily being put aside for later life and is normally not available to deal with tomorrow morning's financial emergency.
So increasing pension contributions should be considered alongside the rest of your finances.
Do you have accessible emergency savings?
Do you have expensive short-term debt?
Are there significant costs coming up?
Would increasing your pension leave your monthly finances uncomfortably tight?
There is very little point building a magnificent retirement plan for Future You while Present You is trying to buy dinner on a credit card because the washing machine broke.
Different money has different jobs.
The biggest advantage you have might simply be time
One of the reasons pension saving can become powerful is that contributions made earlier have longer to participate in investment returns.
Investment growth is never guaranteed.
Markets rise and fall.
But money invested for twenty or thirty years has more time to experience returns than money contributed in the final few years before retirement.
This is where compounding can become important: returns may themselves have the opportunity to generate further returns over time.
It is also why increasing contributions and increasing investment risk should not be confused.
If the problem is that not enough money is going into the pension, taking more investment risk is not automatically the answer.
They are two different levers.
What about the tax rules?
There are limits and tax rules around pension saving.
For 2026/27, the standard pension Annual Allowance is £60,000, although it can be lower in certain circumstances.
Employer contributions and relevant defined benefit pension growth can also count towards the Annual Allowance, so it should not be interpreted as simply meaning "everyone can personally pay £60,000 into a pension."
Higher-income individuals can potentially be affected by the tapered Annual Allowance, and people who have flexibly accessed certain defined contribution pension benefits may become subject to the Money Purchase Annual Allowance.
The MPAA for 2026/27 is £10,000.
For most people making ordinary monthly contributions, we don't need to turn the whole article into an HMRC instruction manual.
But if you are considering making substantial contributions, the tax position needs checking properly.
So how do you know if you're paying enough?
This is where it all comes together.
Write down:
What pensions have I already got?
What is currently going into them?
What is my employer contributing?
What State Pension might I receive?
What other retirement savings and assets do I have?
When would I like to retire?
And most importantly:
What do I actually want retirement to look like?
Then you can model where the current plan might take you.
A projection is not a promise.
It cannot tell us exactly what markets, inflation or life will do over the next twenty years.
But it can help answer a much more useful question:
"If I carry on doing roughly what I'm doing now, where might I end up?"
If the answer looks below the lifestyle you are aiming for, increasing pension contributions may be one possible response.
Other possibilities might include retiring later, adjusting future spending, using other assets or a combination of approaches.
The point is that now we're solving an actual problem.
Don't start with £200
People often start by saying:
"I reckon I could afford another £200 a month."
Fine.
But I would start one step earlier.
What problem is the extra £200 trying to solve?
If there is a projected retirement shortfall, £200 can be measured against it.
If there isn't a clear objective, we are simply putting more money into a pension because we vaguely feel we probably should.
Saving more for retirement can be extremely valuable.
But the best contribution is not the biggest number you can physically squeeze out of this month's salary.
It is a contribution that makes sense within your retirement plan and remains affordable alongside the life you are living today.
You can explore this further in Should I Pay More Into My Pension? and How Does Pension Tax Relief Work?.
Important Information
This article provides general information and education only and does not constitute personal financial, pension, investment or tax advice.
Pension contributions and the amount that may be appropriate depend on individual circumstances, including income, existing pension benefits, retirement objectives, affordability, other savings and debts, employer contributions and tax position.
Eligible pension contributions may receive tax relief subject to the applicable rules and individual circumstances. The way tax relief is provided depends on the pension arrangement.
For the 2026/27 tax year, the standard Annual Allowance is £60,000 and the Money Purchase Annual Allowance is £10,000. Lower Annual Allowances can apply in certain circumstances, including for some higher-income individuals or following certain forms of flexible pension access.
Pension investments can fall as well as rise and investment returns are not guaranteed. Projections are illustrations rather than guarantees of future pension values or retirement income.
Pension and tax rules can change. Individual calculations and regulated financial or specialist tax advice may be appropriate before making significant pension contributions.
Steve Ralph
Financial Adviser