How much should you be putting into your pension?

Pensions

11 Mar

Saving for retirement is a journey that requires careful planning and consideration, and one of the most crucial decisions you'll face is determining how much money to put into your pension. While there's no one-size-fits-all answer, understanding your financial situation, retirement goals, and the various factors that influence pension contributions can help you make informed decisions. In this article, we'll explore the key considerations to help you determine the right amount to put into your pension.

1. Start With Your Goals – and Get Specific

Before numbers, get clear on what you want from retirement:

When do you want to retire?
Where do you want to live?
What kind of lifestyle do you imagine? (Travel? Hobbies? Helping family?)

The clearer your picture, the easier it is to build your plan.

2. Estimate What You’ll Need (and Where It’ll Come From)

Table: Common Retirement Expenses

    
        Expense Type
        Typical Monthly Amount (£)
      
        Housing (rent/mortgage, bills)
        £700–£1,400
      
        Food & Groceries
        £250–£400
      
        Travel/Transport
        £60–£200
      
        Healthcare & Insurance
        £60–£200
      
        Leisure & Holidays
        £100–£500
      
    Source: Financial Penguin analysis & UK averages

3. What Are Your Other Income Sources?

You might not rely solely on your pension pot. Consider:

State Pension (see GOV.UK)
Workplace or personal pensions
Investments, ISAs, rental property
Part-time work or side hustles

Add these up for your likely total income.

4. How Much Should You Put In?

Here’s a quick comparison of some popular pension contribution “rules of thumb”:

  
        Rule
        How It Works
        Example
      
        Half-Your-Age Rule
        Contribute a % of your salary equal to half your age when you start. Increase % if you start later.
        Start at 30: 15% salary; Start at 40: 20%
      
        4% Rule
        Save at least 4% of your annual salary each year as a minimum.
        Earn £30,000? Save £1,200/year
      
        Employer Match
        Always contribute at least enough to get your employer’s full match.
        If your employer matches 5%, contribute at least 5%

Use these as guidelines—not rules. Everyone’s situation is unique! Try our Pension Calculator for a tailored answer.

5. A Simple Retirement Savings Timeline

  
      Start early:
      Even small contributions in your 20s/30s grow massively with compounding.
    
      Increase as you earn:
      Raise contributions with every pay rise or when expenses drop.
    
      Review yearly:
      Check your pension’s progress at least once a year, and adjust if you fall behind your goals.
    
      Approaching retirement:
      Review risk level, consider advice, and check if your savings match your planned retirement date and lifestyle.

6. Checklist: Getting the Most from Your Pension

Pension Power Checklist

✅ Know your State Pension forecast (check on GOV.UK)
✅ Check your workplace pension contributions—and get your full employer match
✅ Increase your % if you get a pay rise or bonus
✅ Review your investments: are you comfortable with your fund risk?
✅ Use a pension calculator yearly to stay on track (try ours!)
✅ Don’t forget about old pensions—consolidate or track them down if needed
✅ Seek advice for big changes or if you’re not sure what to do

7. Practical Tips for Boosting Your Pension

Auto-escalate: Set up automatic increases (e.g. +1% each year).
Windfalls: Add bonuses, inheritances, or other lump sums to your pension when you can.
Fees matter: Lower fees can mean thousands more for you—compare pension providers!
Don’t panic in downturns: Pension savings are long-term. Markets go up and down.
Get professional advice: For big decisions (like drawdown or transferring a pension), talk to a regulated financial adviser.

8. Review, Adjust, Repeat

Your goals, income, and needs change—so should your pension plan.
Set a reminder to review your contributions at least once a year, or when your circumstances change (like a new job or new baby).

9. Need a Personalised Number?

No guide or rule-of-thumb can match your unique situation.
Get an instant estimate with the Financial Penguin Pension Calculator—it’s free and only takes two minutes.

Summary

Start early, increase often, review regularly.
Aim for at least the full employer match.
Check your real needs and use calculators.
Don’t be afraid to ask for help—your future self will thank you!