How much should you pay into your pension?

For most people, the short answer is ‘as much as you can afford’.

But there are a few things to consider:

  • You’ll get tax relief on contributions you pay up to 100% of your earnings, subject to an overall annual limit of £40,000 (2022-23). This limit is called the ‘annual allowance’.
  • If you haven’t used all your annual allowance in the previous three years, you can add the unused amount to this year’s annual allowance (though you can still only pay up to 100% of your earnings in a year).
  • If you’re a high earner with an income above £200,000 a year, your annual allowance might gradually reduce to as low as £4,000 in the current tax year.
  • The annual allowance might also reduce to £4,000 when you take benefits from your pension pot. This can happen if you take more than the tax-free amount, which is usually 25% of your pension pot.
  • If you earn less than £3,600, you can pay in up to £2,880 and still get tax relief.
  • The annual allowance includes contributions paid by your employer too.

There’s also an overall limit on the total value of all your private pensions called the lifetime allowance. The lifetime allowance is currently £1,073,100 and will remain at this level until 2025-2026.

"Lifetime Allowance": The lifetime allowance is the limit on how much you can build up in pension benefits over your lifetime while still enjoying the full tax benefits. If you go over the allowance, you'll generally pay a tax charge on the excess at certain times.

If you want to pay more than the limits will allow, you can pay into other savings and investments, like ISAs for example. ISAs don’t attract the same tax relief as pensions, but you can withdraw money free of tax.

Back to 'Planning for retirement'