Should I Pay More Into My Pension?

Why does paying more matter?

Pension outcomes are driven by several things.

Broadly:

money contributed

plus:

investment growth

minus:

charges

over:

time.

You cannot control future investment returns.

But one thing you can influence is:

how much goes in.

If two people have broadly similar investments and timeframes, the person contributing more is generally building a larger pension than they otherwise would have.

That doesn't mean the final outcome is guaranteed.

It simply means:

more money has had the opportunity to work for longer.

The danger of asking for a magic percentage

You will see rules online such as:

"Pay 10%."

"Pay 15%."

or:

"Take your age when you start and halve it."

These can sometimes be useful as very rough educational illustrations.

But they aren't personal retirement plans.

A 30-year-old who already has £150,000 in pensions and wants a modest retirement has a different problem from a 50-year-old with £25,000 who wants to retire at 60.

The percentage alone doesn't answer either question.

Steve's observation

Asking:

"What percentage should I put into my pension?"

is a bit like asking:

"How much petrol do I need?"

Before I answer, I need to know where you're trying to drive.

Start with the retirement you want

Before increasing contributions, work backwards.

Ask:

• When would I like to retire?
• What lifestyle would I like?
• What might that lifestyle cost?
• What State Pension might I receive?
• What other pensions and assets do I already have?

Then estimate the gap.

That is the logic behind:

How Much Money Do I Need to Retire?

and:

Can I Afford to Retire?

Contribution planning becomes far more useful once there is an objective.

What am I contributing now?

Start with the facts.

Look at your statement or payslip.

For each pension, identify:

• your contribution
• your employer's contribution
• and: any tax relief added through the pension system.

Do not confuse:

what leaves your bank account

with:

the total amount reaching the pension.

For example, under a relief-at-source arrangement, an eligible £80 personal contribution would normally become £100 in the pension after the provider claims £20 from HMRC.

Further tax relief may potentially be available depending on the individual's tax position and the applicable tax rules.

That is why £80 from your pocket can potentially mean more than £80 reaches the pension.

Is my employer willing to contribute more?

This is one of the first things I would check.

Some workplace pension schemes operate contribution structures where an employer will contribute more if the employee also increases their contribution.

Not every employer does this.

But where additional employer contributions are available, they can materially change the value of increasing your own contribution.

What if my employer only pays the minimum?

Then additional employee contributions may still be considered.

But the decision is now different.

You are no longer increasing contributions specifically to unlock more employer money.

You are deciding whether putting more of your own resources into pension saving helps your wider financial plan.

That should be judged alongside:

• affordability
• other savings
• debt
• future spending
• and: your retirement objective.

Should I increase my pension before building emergency savings?

Not necessarily.

A pension is designed primarily for later life.

Money inside it is generally not available whenever you suddenly need:

• a new boiler
• three months without work
• or: a large unexpected bill.

So somebody who has no accessible emergency savings at all may need to consider financial resilience alongside retirement saving.

This isn't:

pension good, cash bad.

Different money has different jobs.

What about expensive debt?

Again:

context matters.

If somebody has expensive short-term borrowing or high-interest consumer debt, directing every spare pound into inaccessible long-term pension saving may not automatically be the best use of their money.

That doesn't mean:

stop the pension.

Particularly where employer contributions would be lost, that could itself be costly.

It means you should look at the whole financial picture rather than treating the pension in isolation.

Why is starting earlier so powerful?

Time gives investments the opportunity to compound.

Imagine two people each contribute the same total amount, but one gets money invested much earlier.

The earlier contributions have longer to experience:

investment growth

and potentially:

growth on previous growth.

That is compounding.

But investment growth isn't guaranteed.

Markets fall as well as rise.

The principle is simply:

money invested for longer has more time to participate in investment returns.

Is increasing my contribution better than chasing better investment returns?

Often, this is worth thinking about.

Suppose someone is contributing £200 a month and spends enormous amounts of time trying to find a fund that might produce an additional fraction of a percentage point.

Increasing the contribution to £250 may have a much clearer impact on how much is actually being saved.

That doesn't mean investment choice is irrelevant.

It means:

contribution rate and investment strategy are different levers.

We covered investment performance in:

Is My Pension Performing Well?

Don't try to solve a:

"not enough money going in"

problem purely by taking more investment risk.

Can I just keep increasing contributions?

There are limits and tax rules to understand.

For the 2026/27 tax year, the standard pension annual allowance is currently:

£60,000.

That annual allowance applies across your private pensions and can include:

• your own DC contributions
• employer DC contributions
• and: the increase in value of defined benefit pension rights calculated under the pension-tax rules.

The annual allowance isn't simply:

"I personally can pay £60,000 into my pension."

That is a very important distinction.

What is the earnings limit for personal tax relief?

Tax relief on personal pension contributions is subject to separate rules.

For most individuals, tax relief on personal contributions is generally limited by relevant UK earnings, subject to the applicable rules.

Someone with little or no relevant earnings may still potentially receive relief on a limited gross contribution under the special rules.

So there are two separate concepts:

how much you can contribute

and:

how much pension contribution receives tax relief.

These are not always the same question.

What if I have already used previous pension allowances?

Carry forward may allow some people to use unused annual allowance from the previous three tax years, subject to the rules and their circumstances.

But:

carry forward does not simply remove all the other contribution rules.

You still have to consider:

• current-year pension saving
• prior-year unused allowance
• earnings/tax-relief rules
• and: whether any reduced annual allowance applies.

This is an area where individual calculations can become important.

What is the tapered annual allowance?

Higher-income individuals can have a reduced annual allowance.

For 2026/27, the taper can apply where both relevant income tests are exceeded.

The current thresholds are:

• threshold income above £200,000
• and: adjusted income above £260,000.

The tapered annual allowance can reduce as low as:

£10,000.

This is a technical area because calculating threshold and adjusted income isn't simply the same as looking at the salary printed on a payslip.

If you are affected:

get the calculation right before making significant pension contributions.

What is the Money Purchase Annual Allowance?

This is another important trap.

If you have flexibly accessed taxable money from a defined contribution pension in a way that triggers the Money Purchase Annual Allowance — MPAA, your tax-advantaged future DC pension saving can be restricted.

For 2026/27, the MPAA is:

£10,000.

Not every pension withdrawal triggers it.

For example, taking some types of pension benefits can be treated differently.

But once the MPAA is triggered, simply assuming you still have a normal £60,000 DC contribution allowance can cause problems.

Steve's observation

One of the slightly irritating features of pensions is that:

"I've taken some money out"

and:

"I've triggered the MPAA"

are not automatically the same sentence.

The method matters.

Does salary sacrifice change things?

Some employers allow pension contributions through salary sacrifice.

Broadly, the employee agrees to reduce salary and the employer makes an employer pension contribution instead.

This can have tax and National Insurance consequences and can sometimes be financially attractive.

But salary sacrifice can also affect other things linked to salary or earnings.

The precise effect depends on:

• the employer's arrangement
• the employee's circumstances
• and: current tax rules.

So do not change salary sacrifice simply because somebody online said:

"It saves NI."

Understand the whole effect.

Should I pay a lump sum into my pension?

Potentially.

Some people increase pensions through:

regular monthly contributions

while others make:

occasional lump sums.

Neither is automatically better.

A lump sum may be relevant after:

• a bonus
• a business profit
• an inheritance
• or: a financial review.

But contribution allowances, tax-relief rules, cashflow and investment risk still apply.

Do not assume:

"It's before 5 April, therefore put it all in the pension."

Tax-year deadlines do not replace financial planning.

Should I increase my pension every time I get a pay rise?

This can be a useful behavioural approach.

For example, somebody could choose to allocate part of a future pay increase towards pension saving rather than allowing all of it to disappear into higher spending.

The advantage is psychological:

you may not feel the full reduction because your take-home income still rises.

But it remains a planning choice.

There is no universal percentage of every pay rise that must go to a pension.

What if retirement is only a few years away?

Increasing contributions can still potentially affect the retirement position.

But the shorter the timeframe, the less time those new contributions have to experience investment growth before retirement.

That means somebody approaching retirement may need to focus particularly on:

• the contribution itself
• tax
• investment risk
• when the pension will be accessed
• and: the wider retirement-income plan.

Do not try to compensate for twenty years of under-saving by automatically taking excessive investment risk in the final three.

How do I know if I'm paying enough?

This is the real question.

You need to bring together:

• existing pensions
• current contributions
• employer contributions
• State Pension
• other retirement assets
• retirement age
• and: desired retirement spending.

Then run a projection.

Not because projections predict the future perfectly.

They don't.

But they help answer:

"If I carry on doing roughly what I'm doing now, where might it take me?"

Then stress-test that result.

If the projected outcome is below the lifestyle you're aiming for, increasing contributions is one possible response.

Other responses might include:

• retiring later
• changing expected retirement spending
• using other assets
• or: a combination of those.

A Simple Pension Contribution Review

Before increasing your pension, answer:

1. What have I already got? Current pension values and benefits.
2. What is going in now? Your contributions plus employer contributions.
3. Am I receiving all available employer contributions? Check the scheme.
4. What retirement am I aiming for? Lifestyle and age.
5. What does my current trajectory look like? Use reasonable assumptions, not promises.
6. Is there a shortfall? If yes, quantify it.
7. Can I afford to increase contributions? Without destroying financial resilience.
8. What tax rules apply? Tax relief, annual allowance, taper, MPAA where relevant.
9. Where will additional money be invested? Increasing a contribution also increases exposure to the chosen investments.
10. When will I review it again? Because this isn't a one-time decision.

What Should I Do Next?

Find your latest pension statements.

Then write down:

• Current pension value
• Your monthly contribution
• Employer monthly contribution
• Total annual pension saving
• Investment approach
• Expected retirement age
• and: the retirement lifestyle you're aiming for.

Then ask:

"If I continue doing this, am I heading towards the retirement I want?"

If the answer looks like:

no,

then increasing contributions deserves serious consideration.

But first establish:

how much extra might be required

and:

whether doing so fits the rest of your finances.

For many people, the biggest pension mistake isn't choosing the wrong obscure investment fund.

It's simply: not putting enough money in.

But equally, telling everybody to: "maximise your pension" isn't financial planning.

Steve's observation

If I ask you what retirement you want and you say:

"No idea."

then ask me:

"How much should I put in my pension?"

we've started at the wrong end.

First work out where you're going.

Then work out whether the fuel you've got is likely to get you there.

That's a pension contribution plan.

Paying into a pension but have absolutely no idea whether it is enough? Start by comparing what you're currently building with the retirement lifestyle and retirement age you're aiming for. If you'd like help turning your existing pensions, contributions and retirement goals into a proper retirement projection, speak to Open Door Wealth.