Striking the right balance with pension contributions is important. Contribute too little, and you could leave yourself short in retirement. If you contribute as much as possible to your pension now, you might miss other goals or place pressure on your day-to-day budget.

So, asking “how much should I be paying into my pension each year?” is sensible.

You might have read answers to this question that apply a general rule to everybody, such as a certain percentage of your income or a target amount you should have at a particular age.

However, the reality is that there isn’t a simple answer that can be applied to everyone. A range of factors, from your current age to your desired retirement lifestyle, will affect how much you need in retirement.

Here’s a step-by-step guide on how to calculate what you may want to add to your pension.

1. Review your current pension and other assets

If you’re already contributing to a pension, or have in the past, gather your statements so you can understand your current position. The savings you’ve already made will act as a foundation for your future contributions.

Don’t forget to check for lost pensions. According to Pensions UK (24 October 2024), as much as £31.1 billion is sitting in unclaimed pension pots across the UK. Take some time to check if you’ve got any gaps – you might find a lost pot that could boost your retirement.

In addition to your pension, you may have other assets you plan to use to fund retirement, such as savings or investments held outside a pension, which you may want to include in this step.

2. Decide when you’d like to retire

When you want to retire will have a direct effect on how much you’ll need to save. If you hope to retire early, keep in mind that you’ll need to create an income for longer, and you may not receive any State Pension until you’ve been retired for some time.

3. Set out your desired retirement lifestyle

To accurately set a pension target, you need to understand what kind of lifestyle you hope to enjoy in retirement. If you’re envisioning plenty of luxury holidays, a new car every few years, and trips with friends, you’ll need to save more than if you’re happy with a more moderate lifestyle.

With a lifestyle set out, you can start to consider how much you’ll need as a regular income to maintain it. Remember to factor in unexpected costs and the effect inflation is likely to have on your cost of living.

With an estimated required annual income, you can work out how much you’ll need in your pension by considering how long you’ll spend in retirement.

It’s wise to look beyond the average life expectancy, as doing so could leave you facing financial difficulty if you live for longer. The Office for National Statistics life expectancy calculator (14 February 2025) suggests a woman aged 65 has an average life expectancy of 88. However, there’s also a 1 in 4 chance she’ll celebrate her 94th birthday.

4. Review how your pension will grow

The good news is you don’t need to contribute the total amount you need to secure your desired lifestyle.

First, your pension contributions benefit from tax relief at your marginal rate of Income Tax.

Assuming you don’t exceed the pension Annual Allowance (£60,000 in 2025/26 or 100% of your annual income, whichever is lower), you’d only need to contribute £80 to increase your pension by £100 as a basic-rate taxpayer. If you’re a higher- or additional-rate taxpayer, the amount you’d need to contribute would fall to £60 and £55 respectively.

Second, your pension is usually invested with the aim of delivering long-term growth.

As you’ll often be investing through a pension for decades, the compounding effect of investment returns can help your pension grow significantly over time.

However, it’s important to note that investment returns cannot be guaranteed.

5. Assess how much your pension contributions need to be

With all this information, you can work backwards to calculate how much you’d need to add to your pension each year to achieve your desired lifestyle.

Using a cashflow model as part of your financial plan can help you bring all this data together and visualise how your wealth might change. For example, you might model how your pension would grow if you increased your contributions by 2% compared to 4%.

You can also model other scenarios, such as the age you’ll retire and changing your income needs.

Regular pension reviews can help make sure you’re on track. The outcomes of a cashflow model cannot be guaranteed, but it can be useful when you’re trying to answer the question “how much should I contribute to my pension?” and others like it.

Calculate your retirement wealth today

Use a wealth calculator to give you a quick, personalised snapshot of where you are currently and whether you’re heading toward the lifestyle you want.

Try the wealth calculator for a clearer view of your retirement progress. Answer four simple questions:

👉 Tap here for a personal retirement calculation.

Work with us to create a retirement plan

Calculating how much you should contribute to your pension each year is just one part of your retirement plan. You might also need to know how the money will be invested when it’s in your pension, or how to access the savings when you’re ready to create an income.

We can work with you to create a complete retirement plan to prepare for the next chapter of your life.

Arrange a free consultation

We provide a free one-hour consultation with an independent financial planner. Its a great opportunity for you to have a personal conversation. You may come away with a clearer understanding of how much you should contribute to your pension to achieve the retirement you want.

Call our team: 01244 347 583 |  info@innesreid.co.uk | Send a message

Subscribe for more retirement and pensions practical guidance. Get great insights from us once a fortnight – subscribe to our latest insights and follow us on Facebook, Instagram or LinkedIn

More on retirement and pensions:

• How to create a guaranteed income in retirement
• Is the default pension right for you?
• Pension consolidation to maximise you retirement savings

Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The Financial Conduct Authority does not regulate cashflow modelling.

The post How much should you contribute to your pension? appeared first on Innes Reid.

1. Do you know what your pension plans are currently worth? YES/NO

2. Do you know what your pension fund is invested in? YES/NO

3. Do you know how well (or not) your pension investments are performing? YES/NO

4. Do you know what your pensions will provide when you retire? YES/NO

5. Could you afford to live on the flat rate state pension of £155.65 per week YES/NO

If you answer ‘no’ to any one of these questions, the best time to start a pension review is now. In fact, you cannot afford to delay!

Call 01244 347583 to book your free consultation. We are available at times to suit you and have the experience and the high-quality independent financial advisers and pension specialists to help you.

The post Pension review – when is the best time? appeared first on Innes Reid.

In October 2012, employers began enrolling their staff in to auto-enrolment pension schemes and by February 2018, all companies will have had to enrol their employees into such a scheme. Nevertheless, concerns had arisen that workers who pay into certain schemes managed by some ‘master trusts’ could be at risk of losing their money if the scheme they were contributing in to collapsed.

Master Trusts are multi-employer occupational pension schemes which means they set up and administer a scheme on behalf of several companies at the same time. Setting up an individual pension scheme can be expensive, so many firms use master trust providers instead.

The new Pensions Bill will provide stricter control of these schemes by the Pensions Regulator (TPR) ensuring that master trusts follow the new standards. At present, only nine master trust schemes are listed on TPR’s website as qualifying for their quality assurance mark.

The Pensions Regulator has welcomed the new bill. Lesley Titcomb, TPR’s chief executive said: “We have voiced concerns for some time about the need for stronger legislative standards for master trusts and have worked with government and other regulators to improve levels of protection for members.

“We have been calling for a significantly higher bar regarding authorisation and supervision, and we are pleased that today’s announcement proposes to give us the power to implement these safeguards”

The Government is also introducing legislation to help make it easier for people who wish to transfer or withdraw money from their pension pots by capping the early exit fees and penalties they currently face.  It is not known at what level they will be capped but more information will be available in due course.

And finally, a new single guidance body is also being set up to help people with retirement advice. It will bring together the Pensions Advisory Service, Pension Wise and the Money Advice Service (MAS)

These are welcome developments, but when it comes to positive planning for your retirement, ‘guidance’ is no substitute for independent advice from trained and qualified pensions professionals.

As Chartered Financial Planners, Innes Reid independent financial advisors hold the G60 advanced pension qualification and are registered as an approved pension transfer specialist with the FCA.

For advice on your existing arrangements, and all your retirement options, contact Innes Reid on 01244 347583 or email info@innesreid.co.uk for a free, initial consultation – we are available at times to suit you.

The post The new Pensions Bill: Fit for a Queen appeared first on Innes Reid.

For those who do not plan and prepare, there may be problems ahead as they try to get to grips with the complexities of the new rules, so here are a few points to consider when thinking about your pension under the new pension flexibility rules.

Plan how you pay your income tax

The new pension rules allow greater flexibility in how we access our personal pension funds, but the majority of withdrawals are subject to income tax, and in many cases an emergency tax code is applied. You could turn into a 45% income tax-payer overnight, and (in certain circumstances) you could find yourself being taxed at 60% on the capital you withdraw from your pensions. The answer is to take advice on how to manage your withdrawals over a number of tax years.

Make sure your income is sustainable

Where excessive withdrawals are made from pension funds, your risk is that your capital will eventually run out and you will have to get by on State benefits – depending on individual National Insurance Contributions, this will be a flat rate State Pension of up to £155.65 per week (from April 2016).

Don’t restrict your future planning options

The new rules provide several different ways to withdraw your pension capital, some of which can limit your pension saving options in future. An expert independent financial adviser can arrange your withdrawal so that you pay less tax now and in the future, and still have the option of contributing to pensions at a later date.

Avoid fines HM Revenue & Customs

Savers with more than one pension will be required to notify some or all of their other pension providers once they start to draw from one of these pensions. They need to do this within 91 days of receiving a certificate confirming they have taken advantage of the new rules or of starting to make contributions to the plan, if later.

If you do not meet this deadline you could be hit with a fine of up to £300, with further penalties if you delay further!

Ensure your pension passes to your family

The changes to the way that pension capital is treated on death are just as radical as the changes on access for the plan holder.

With careful planning, pension capital can be passed to children and grandchildren tax free. This can also apply to pension assets when a self invested option is adopted – for example, investing in commercial property.

Monitor how your pension capital is managed

Most of us don’t take an interest in how our pensions are performing, possibly until it is too late! The new rules offer very welcome retirement planning opportunities but these benefits can be reduced if your pension is not proactively and effectively managed to deliver the best returns.

Don’t forget about Lifetime Annuities

When introducing his reforms, the Chancellor of the Exchequer famously announced: ‘No caps. No drawdown limits. Let me be clear: no one will have to buy an annuity’. However, Lifetime Annuities will also benefit from significant changes under the new rules, including the option to pass benefits on, tax free, to nominated beneficiaries. This means that Lifetime Annuities will still be the best solution for many retirement strategies and should not be rejected without full consideration.

Don’t miss out on guarantees

Many older pensions include valuable guarantees such as Guaranteed Annuity Rates which provide relatively high levels of guaranteed retirement income with no investment risk. These have to be considered when developing your retirement strategy.

Make use of all your options

The flexibility of modern pensions means that you do not have to make a straight choice between the options available; you can apply your pension capital to more than one solution. For example, you can use part of your capital to provide a no risk sustainable income via a Lifetime Annuity, and part to provide flexible access to your capital under the new rules.

Make sure you understand the risks involved

Unlike Lifetime Annuities, the new flexible pension options will leave the plan holder exposed to investment risk. An independent adviser will discuss investment risks with you and manage your portfolio so that your investments are consistent with the level of risk you are prepared to take.

Integrate your pensions and investments

The new rules will change the way we think about different investments, and for many investors their pension will become more important than their ISAs. The answer is a holistic approach to wealth management that applies a unified investment strategy to all your assets and provides ongoing advice on how, and where, to invest your capital efficiently and effectively.

In short, whilst the new rules can provide many advantages and have made pensions more interesting, there are many complications and possible pitfalls.

Professional advice is essential. Call 01244 347583 to book your free consultation. We are available at times to suit you and have the experience and the high-quality independent financial advisers and pension specialists to help you.

The post Preparation and Planning – The Pension Flexibility Survival Guide appeared first on Innes Reid.

In April 2016, the pensions Lifetime Allowance will reduce to £1m from the current limit of £1.25m. This will be accompanied by two transitional protection measures to protect those pension savers who will be affected by the change – Fixed Protection 2016 and Individual Protection 2016.

By our count, Fixed Protection 2016 and Individual Protection 2016 will be the 9th and 10th set of such measures since 2006!

For those potentially affected, this requires the most complex advice, and you need to be able ‘think around corners’ to address all the issues involved.

Protect yourself against the Lifetime Allowance – The concerns that have to be taken into consideration include:

• What is the Lifetime Allowance tax charge and how is it paid?
• What are the Protection options available to avoid the Lifetime Allowance tax charge, and how and when can you apply?
• Is Individual Protection 2014 (which can still be applied for) more suitable than the 2016 options?
• Would it be better to continue to contribute to pensions and pay the Lifetime Allowance tax charge?
• Alternatively, does it make sense to take pension benefits in 2015/2016 and what are the income tax implications of taking benefits early?
• Is it best to take the Lifetime Allowance tax charge against pension income (25%) or pension capital (45%)?
• If the most practical solution is to opt out of a pension scheme, what about Death in Service or ill health pension benefits?
• What is the position with regard to the other pension limit, the Annual Allowance (now £40,000 per annum)

On the face of it, the deadline for decisions appears to be July 2016, when individuals will be able to apply for Fixed Protection 2016 and Individual Protection 2016. However, to make effective use of the protection, many pension scheme members will have to consider ‘opting out’ of pension saving in February or March this year.

With so many imponderables, expert independent advice has never been more essential. If you think you may be affected by the 2016 changes you cannot afford to delay.

Protect yourself against the Lifetime Allowance – Call 01244 347583 for a free, initial consultation and speak with one of our pension specialists – we are available at times to suit you.

The post Protect yourself against the Lifetime Allowance appeared first on Innes Reid.