How much should I pay into my pension?

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Fact Checked.
Updated on
January 5, 2023

In a nutshell

How much you should pay into your pension all depends on the lifestyle you want in retirement. There’s 3 official retirement standards; minimum, moderate and comfortable to use as guidelines – the more financially comfortable, the bigger the pension you’ll need. Monthly contributions can range from £50 per month to £720 for a 25 year old. And the older you are the more you'll need to add.

Nutty

Worried about your future and how much you should have in your pension? Don’t worry, most of us are! Pensions aren’t that easy to understand and neither is how much you should be saving or need in your pension to have a comfortable retirement – we’ll get to that in a moment. But there’s no need to panic, if done right, building up a good pension pot is easier than it seems. 

Let’s run through how much you should be paying into a pension to financially live the lifestyle you want.

Working out your retirement income

First things first, to work out how much you should be paying into your pension, you’ll need to estimate how much you think you’ll need as a retirement income. Luckily, there’s 3 official easy to understand retirement standards:

  1. Minimum: this is how much you’ll need to cover all the essentials, such as things like energy and food, with a small budget for yourself. It comes to £41 per week for food and £410 per year for clothes. There’s no room for a holiday abroad or things like a car.
  2. Moderate: This is an increase in your essentials budgets, with your food budget increasing to £47 per week and clothes increasing to £730 per year. There’s room for a cheap holiday to Europe each year.
  3. Comfortable: this covers all your essentials and should provide a relatively comfortable living, but nothing too fancy. It’s £59 per week for food and £1,200 for clothes. There’s also room for things like a 3 week holiday per year.

These were produced by the Pensions and Lifetime Savings Association and are the official Retirement Living Standards.

Here’s how much you’ll need each year as a retirement income for each category:

UK (Excluding London)

Retirement standard Yearly income (one person) Yearly income (couple)
Minimum £10,900 £16,700
Moderate £20,800 £30,600
Comfortable £33,600 £49,700

London

Retirement standard Yearly income (one person) Yearly income (couple)
Minimum £13,200 £21,100
Moderate £24,500 £36,200
Comfortable £36,700 £51,500

Was it what you were expecting? As a rule of thumb, you’ll need slightly less than you earn at the end of your career to maintain a similar lifestyle.

And to clarify a few things, these figures don’t include any housing costs, they assume you have a mortgage and that it will be paid off by the time you retire. If you think you’ll still have a mortgage or be renting, you’ll need to add these costs on top.

If you want little extras in retirement, such as treating your grandchildren to nice presents, or fancy holidays, you’ll need to add these too.

The problem is, how do you build a pension pot to give you a pension income you’d like? Well, it comes from your own pension and the State Pension.

The State Pension

We’re going to mention the State Pension a lot, so just to make sure you’re aware of the details, let’s run through what it is quickly.

The State Pension is the pension you’ll get from the government when you reach the official retirement age, called the State Pension age – currently 66 but rising to 68 in the future.

State Pension age

To qualify for the State Pension, you’ll need to have paid at least 10 years worth of National Insurance contributions, and to get the full amount, you’ll need to have paid 35 years worth.

Qualify for the State Pension

Currently, the State Pension is £185.15 per week, which works out as £9,627.80 per year. Not a lot – you’ll likely struggle to live off just this in the future. This is why a private pension is recommended, it will help you boost your retirement income (by a lot).

We’ll cover private pensions in a bit, but if you’re in a rush, check out PensionBee¹, they’re 5* rated and make it super easy to save for your retirement. Here’s our PensionBee review to find out more. Alternatively, you can compare the best pension providers.

How much you’ll need in your pension pot

To get the yearly income to suit your retirement lifestyle here's what you need to save in your pension pot by the time you retire.

Total pension pot (including receiving the State Pension)

If you expect to receive the State Pension, here’s what you’ll need to save within a private pension:

Retirement standard Yearly income (one person) Total pension pot (State Pension removed)
Minimum £10,900 £42,980
Moderate £20,800 £296,594
Comfortable £33,600 £627,844

Total pension pot (not including receiving the State Pension)

If you don’t expect to get the State Pension, here’s what you’ll need to save in a private pension:

Retirement standard Yearly income (one person) Total pension pot
Minimum £10,900 £284,668
Moderate £20,800 £538,282
Comfortable £33,600 £869,533

Fairly hefty figures aren’t they? If they seem out of reach right now, don’t panic just yet – if you use the right saving tactics your pension pot can grow very large over time, and we’ll run through how to increase yours below.

Pension growth

Note: we’ve also got a guide to learn more about how much you need in your pension pot.

To clarify, to get a yearly pension income of £10,900 (minimum retirement standard), you’ll have to qualify for the State Pension and then have a private pension of £42,980. And if you don’t qualify for the State Pension, you’ll need a private pension of £284,668. Make sense?

You’ll likely struggle with this level of income, and ideally should aim for moderate, if not a comfortable level. To reach these levels, you’ll need £296,594 for the moderate retirement standard and £627,844 for a comfortable retirement. Including the State Pension.

Types of pensions

Before we get too far ahead, let’s just make sure we’re all on the same page when it comes to pensions – we’ve described the State Pension above, but there’s also a private pension that you’ll use to build your pension pot.

Private pension

This is a pension that’s in your name, it’s private to you, rather than a government pension. You decide how much you want to pay in, and you decide when you’d like to take it, as long as you’re over 55 (57 from 2028).

To confuse things a little, there’s actually different types of private pensions, which are a workplace pension, and a personal pension.

Private pension

Workplace pension

If you’re employed, you’ve probably got one of these. By law, every employer has to set up a workplace pension scheme for their employees as part of the auto-enrolment scheme.

With these pensions, you’ll contribute at least 5% of your salary per year, and your employer will contribute 3% too – it's like a free pay rise! And the money is paid into your pension before you pay tax on your income, so it’s tax-free too.

Workplace pension

Some lucky employees might even have an employer who contributes more than they legally have to as well – they might match your contributes if you decide to contribute more.

Nuts About Money tip: if they offer this, definitely take them up on it, if you can afford it of course.

The downside to these pensions is that the employer chooses which pension company to use, and often, they’ll pick any one just because they have to, rather than the best provider out there, so they can have high fees and poor investment performance. Which brings us onto personal pensions, where you get to pick a provider.

Workplace pension vs Personal pension

Personal pension

With a personal pension, you set this up yourself (and it’s very easy to do). If you’re self-employed, this is your only pension option (we’ve got a guide to self-employed pensions by the way), but they’re also a great addition to your workplace pension if you are employed.

How to set up a personal pension

You get to choose which pension provider you want to use, so you can choose the best one for you – one that’s easy to use, has low fees and a great track record of growing money over time.

If you’re not sure where to find good personal pension providers, check out PensionBee¹, they’re all of the above, and rated 5*. You can also compare all your options with the best personal pensions.

On top of that, you get a massive 25% bonus on everything you contribute to your pension, automatically from the government. We’re not joking! 

Personal pension

That’s because saving into a pension is tax-free (you technically get tax relief), but when you contribute to a personal pension, you would have already paid tax on your income, and so this is refunded back into your pension pot. If you’re a higher rate taxpayer (40% tax), or additional rate taxpayer (45%), you can also claim tax paid at these rates too (on your Self-Assessment tax return).

Personal pension tax relief

A personal pension can really make the difference between a small retirement income and a very large retirement income – and we highly recommend opening one.

Self-invested personal pension (SIPP)

There’s also a self-invested personal pension, which is just like a regular personal pension, with all the tax-free benefits, except instead of the experts managing your money and growing it over time, the investment decisions are all up to you.

Self-invested personal pension (SIPP)

They often have lower fees, as the experts aren’t managing things for you. However, we only recommend these if you know what you’re doing – this is your pension after all. You can learn more with our guide to self-invested personal pensions, and if you’re keen to open one, here’s the best SIPPs.

Average pension contributions (UK)

We’re going to use the average pension pot to work out how much you might have in your pension now, and work out how much you should be paying into your pension (below). So let’s quickly run through that now.

You might want to compare what your pension contributions are with others, however, unfortunately the average pension pot in the UK is very low! Meaning most people's pension contributions are also lower than they actually need to be to achieve a comfortable living in retirement.

Average pension pot

At Nuts About Money we recommend not looking at the average contributions of everyone else. Instead, use the retirement standards to work out your own pension savings target and then work out your target monthly contributions from that – all covered below.

Here’s the average pension pot by age:

Age Average pension pot
16-24 £2,700
25-34 £9,300
35-44 £30,000
45-54 £75,500
55-64 £107,300

Data: ONS (Pension wealth: wealth in Great Britain)

How much should I pay into my pension?

So, how much do you actually need to pay into your pension to achieve these retirement standards? Let’s take a look.

This includes the State Pension as part of your retirement income (so lower pension savings totals), and intending to retire at 68 (when you qualify for the State Pension).

How much should I pay into my pension?

Let’s break it down by 25, 40, 50 and 60 years old – and with nothing in your pension currently, and then starting with the average pension pot for your age (in the table above).

The monthly contributions also include the tax-free saving element (tax-free contributions), but don’t include any employer contributions into a workplace pension.

So, if you’re saving into a workplace pension scheme, you can reduce this by 3% (or more if your employer contributes more), and if you’re saving into a personal pension, you can reduce this by 20% as you’ll be getting a bonus from the government every time you pay in.

For instance, if you wanted to aim for £100 total contributions per month, you’d only have to make contributions of £80 into a personal pension, and the government will add the extra £20 automatically.

Personal pension tax relief example

Minimum retirement standard (£42,980)

Figures include receiving the State Pension.

Age Monthly contributions (no pension pot) Monthly contributions (average pension pot)
25 £50 £30
40 £90 £0
50 £150 £0
60 £350 £0

Moderate retirement standard (£296,594)

Figures include receiving the State Pension.

Age Monthly contributions (no pension pot) Monthly contributions (average pension pot)
25 £340 £320
40 £590 £490
50 £980 £640
60 £2,400 £1,350

Comfortable retirement standard (£627,844)

Figures include receiving the State Pension.

Age Monthly contributions (no pension pot) Monthly contributions (average pension pot)
25 £720 £690
40 £1,250 £1,150
50 £2,100 £1,750
60 £5,000 £4,000

So, for the minimum retirement income of £10,900, at 25 years old, you’ll need to have total contributions of £50 per month, for a moderate pension income, £340 per month, and for a comfortable retirement, £720 per month (as mentioned above, tax-free totals).

If you’re already got a pension pot, these monthly figures reduce.

You can try this for your own personal circumstances with PensionBee’s pension calculator, it’s pretty handy. And if you’re looking for a new pension provider, we can’t recommend PensionBee enough – they’re great! 

PensionBee’s pension calculator

They’re super easy to use, have low fees and a great track record of growing pensions over time. And you can even get £50 added to your pension for free with Nuts About Money, just get started with PensionBee here¹.

If you’d like to compare alternatives, check out the best pension providers

The best way to grow your pension

If you're a bit panicked by the amount you should be paying into your pension, don't worry too much, it’s always a good idea to pay as much as you can reasonably afford – your future self will really thank you. 

The sooner you start building your pension (even paying in a little every month), can really increase your pension pot by the time you retire.

Length of pension

There’s 2 options when it comes to increasing your pension and making pension contributions, the first is to pay more into your workplace pension, and the second is to open a personal pension.

We highly recommend opening a personal pension, unless your employer is willing to contribute more themselves into your pension when you pay in more. Otherwise, the benefits of using a personal pension far outweigh a workplace pension.

With a personal pension, you get to pick the pension provider you want to use, and so you can pick a provider that’s easy to use, has low fees and a great track record of growing money over time (most workplace pension schemes aren’t as good). They also have things such as a phone app to give you full transparency over your money, and make contributions easy.

Modern pension providers

Plus, you get to decide how your money is invested, for instance you could pick a provider with a pension plan that has socially responsible options (e.g. no fossil fuels). We’re big fans of these at Nuts About Money.

If you’re not sure where to find the right personal pension provider for you, check out the best personal pensions. As a spoiler, here’s the top ones:

The best pension providers

Best personal pensions

Boost your pension pot with a personal pension (and get a 25% bonus). Your future self will thank you.

Best personal pensionsBest personal pensions

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Best overall

PensionBee

PensionBee are leading the way with modernising pensions. The investment options are great for many pension savers, it’s an awesome app and website, which are both easy to use, and have tools and charts to show you how your money is growing – and importantly, how to hit your retirement goals.

It's easy to set up and get going, you can start a brand new pension, or simply transfer your existing pensions across.

You’ll pay one simple fee that decreases the more you save.

Fees: low (0.5% to 0.75%) for their core plans

Rating

PensionBee rated 5 stars

Our friends at PensionBee will contribute £50 to your pension when you open a PensionBee account.

Capital at risk.

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Expert advice

Moneyfarm

Moneyfarm is like a financial advisor on your phone (or website), their experts will work with you to determine the best investment strategy. It’s low cost, with an excellent investment track record and great customer service.

You’ll pay one simple fee that decreases the more you save.

Fees: low (0.35% to 0.75%)

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Moneyfarm rated 5 stars

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Simple and easy

Penfold

Penfold is a great app to get you going, with simple pension fund options to choose from and awesome features on the app to view your money at any time. Plus simple tables and charts to work out how much you should be investing to hit your retirement goals.

You don’t need an existing pension to use it, but if you do have one, or a few, you can move those overs too.

Fees: low (0.75% or 0.88%)

Rating

Penfold rated 5 stars

Consolidating your pensions

By the way, if you’ve got lots of pension pots all over the place, it’s often a good idea to combine these into a new personal pension, called consolidating your pension. This way, you won’t forget where they are when the time comes to retire, and you can potentially benefit from lower fees and faster growth of your pension.

Pension consolidation

How? Well, with some good providers (like the ones above), they’ll actually reduce their fees if you have more saved with them (and the fees can already be much lower). They can also have a much better investment performance too, which can have a big impact on your total pension pot in the future.

It’s easy to do too, your new provider will handle everything. You just need to let them know which provider your current pensions are with.

Pension limits

Although paying as much as you can into your pension is often a great thing, there’s some limits to think about, although they’re pretty high!

The first is your annual allowance, and this is where you can only contribute as much as your total annual income each tax year, or £40,000, whichever is lower.

Pension annual allowance

And the second is the pension lifetime allowance, which is currently £1,073,100. And this is how much you can withdraw from your pension in total before you’ll have to pay more tax.

Pension lifetime allowance

If you might be saving more than this, you can also use a Stocks & Shares ISA in addition to a pension, to keep saving tax-free. Learn more about these with our guide to Stocks and Shares ISAs.

Over to you

There we have it, that’s how much you should pay into your pension to get the income you’re after in retirement. We hope that’s made everything clear, and not too depressing! If you want a personalised figure, try a pension calculator.

Ultimately, the rule for how much you should pay in, is how much you can afford to spare each month. It will all go towards building a better retirement for yourself, so don’t feel down for not being able to contribute as much as you should be – any contribution is better than none, and your pension will grow over time. And when you’re older, you might be able to add a bit more cash in too.

You also don’t have to retire at age 68. You can retire later on, and lots of people do! That way you can keep earning money and your pension pot can keep growing for when you are ready to retire.

Your best option for your pension contributions is to open a personal pension, this way you have full control over your pension, and can pick a great provider with low fees and a great track record of growing money over time.

If you’re not sure where to find these, check out the best pension providers. Our recommended providers are PensionBee¹ – which is super simple to use and low cost, and Moneyfarm¹, who have experts on hand to help you if you need.

Get saving – your future self will thank you!

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Best personal pensions

Boost your pension pot with a personal pension (and get a 25% bonus). Your future self will thank you.

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This article was written by the team at Nuts About Money, and fact-checked by 2 independent reviewers. You’re in safe hands.

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Boost your pension pot with a personal pension (and get a 25% bonus). Your future self will thank you.

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