Throughout your working life, it’s important to keep track of your pension to make sure you’re saving enough for the future. Reviewing your pension regularly can help you to identify any potential shortfall and, if necessary, increase your contributions to make up for this.
In this article we discuss the considerations for increasing pension contributions, how to do so, and 5 ways that might help to give your pension savings a boost.
How does a pension work?
First things first, let’s cover how your pension works. When you pay into a personal or workplace pension, your contributions are invested in an investment fund or funds. You can choose those funds yourself or pay a financial adviser to select the funds best matched to your circumstances. As you pay in more, your pension pot should grow – however, the value of an investment can fall as well as rise and isn’t guaranteed. The final value of your pension pot when you come to take benefits may be less than has been paid in.
The contributions you pay into your pension will generally benefit from tax relief. How this works in practice will depend on your individual circumstances and the type of scheme you're contributing to. The value of any tax benefit is dependent on your individual circumstances. If you’re paying into a workplace pension, it’s likely your employer is also making contributions into your pension.
You can access your pension pot from age 55 (this will rise to age 57 in April 2028) – although there are exceptions, for example, if you’re suffering from ill health.1 It’s worth noting that the age for accessing your State Pension is higher than your personal or workplace pensions. To find out more about this, check out our article What is the State Pension and how does it work?
Why should I consider increasing my pension contributions?
Increasing your pension contributions could give your savings a boost and possibly improve your standard of living in retirement. The Pension and Lifetime Savings Association suggest that a single person household outside of London will need £31,300 a year for a moderate retirement lifestyle.2 This is made up of the full State Pension of £11,500 a year for the 2024/25 tax year, plus £19,800 a year of personal pension savings. Yet, in our 2023 financial wellbeing research, we found that 80.9% of single person households (910 respondents) had less than £50,000 in long-term savings.3 With a full State Pension, this amount of savings would cover just under two years for a single person aiming for a moderate retirement lifestyle.
If you’ve noticed you’re not saving as much as you might need, and you can afford to do so, increasing your contributions will give you more time to potentially get on track. And don’t forget, contributing to a pension can be tax efficient, too.
In a workplace pension, some employers may offer enhanced employer contributions that you could make the most of. We’ll cover this more later.
Is increasing pension contributions a good idea for me?
This is a personal decision and depends entirely on your individual circumstances. You should consider what other financial priorities you have – like paying off debt, a mortgage, or building an emergency fund. Once you’ve reviewed your outgoings and any known future expenses, you’ll have a clearer idea of whether increasing your pension contributions is something you can afford to do. If in doubt, please consider speaking to a financial adviser.
How to increase your pension contributions
You can increase your pension contributions by updating your online pension account if you have one, or by speaking to your employer or pension provider who can make the changes for you. Take a look at the following steps that might help you increase how much you’re able to contribute.
- Make the most of employer contributions
- Consider salary sacrifice
- If you finish paying off a purchase, considering reassigning the payments to your pension
- Pay in any lump sums
- Generate additional income
1. Make the most of employer contributions
In some workplace pension schemes, employers will increase their contribution to your pension pot when you do. They may even match what you put in up to a certain amount. If this is an option for you, it could be an easy way to give your pension pot a boost while contributing only a little extra yourself.
2. Consider salary sacrifice
It’s worth finding out if your employer offers ‘salary sacrifice’. Instead of directly making personal contributions, your gross salary is reduced (‘sacrificed’) and, in return, your employer increases their pension contribution by at least the same amount. You don’t pay income tax or National Insurance contributions (NICs) on the sacrificed amount. Depending on how the salary sacrifice arrangement is structured, your employer’s pension contribution could be increased by some or all of the savings in NICs.
It's a complicated subject and, if it’s offered, your employer will be able to explain how it works in relation to you.
Please note that salary sacrifice isn't always suitable for everyone, particularly if you’re a lower earner. To find out more about how it works, visit the MoneyHelper page Salary sacrifice and your pension.
3. If you finish paying off a purchase, considering reassigning the monthly payments to your pension
If you've been comfortably making any regular repayments – such as for a car, holiday or even a loan – review whether you could redirect that money into your pension once your repayments are complete. If you’re not missing the extra income in your bank account, it might be an easy way to put a little more away without noticing.
4. Pay in lump sums if the opportunity arises
If you come into extra money – such as from a bonus, gift or inheritance – you could consider investing some or all of this into your pension pot.
If the lump sum you wish to pay in is particularly large, bear in mind that the Annual Allowance may affect you. This is the total amount that can be paid into your pension each tax year by individuals, employers and third parties, while still benefiting from tax relief.
The Annual Allowance is currently £60,000.4 However, ‘carry forward’ rules mean you may be able to pay in more before being taxed. If you’re not sure how the Annual Allowance might affect any lump sum you wish to pay into your pension, it’s best to speak to a financial adviser. If you don’t have a financial adviser, you can visit MoneyHelper to find the right one for you. There’s likely to be a cost for financial advice.
5. Generate additional income
If you feel like you need to boost your retirement savings or don’t feel you’ve quite got enough – it’s not too late. You can always bring in your own source of income by pursuing your passions, or converting what you have into some additional earnings. Side hustles are becoming more popular, and the extra money you’d earn could help give your pension pot a boost. Make sure you check your contract with your employer before taking on extra work to make sure you’re not breaching any regulations that could impact your main job.
Next Steps
Now you’ve explored ways to increase your pension contributions and why you might consider doing so, a good next step is to set goals to help you save towards the retirement you have in mind. If you’d like to learn more about planning for your life after work, read How to plan for retirement – a step-by-step guide.
You can also check out our financial wellbeing tool, which offers a personalised package of articles, resources, videos, and podcasts to help you develop your financial wellbeing.
This article isn’t financial advice, and if you’re in any doubt about what’s best for you, we’d recommend speaking to a professional financial adviser.
- When can I take money from my pension? Data source, MoneyHelper. Accessed February 2024.
- Retirement Living Standards. Data source, Pension and Lifetime Savings Association. Accessed February 2024.
- Financial Wellbeing research conducted with 10,040 UK respondents between 28 June and 17 August 2023. 910 respondents to the question ‘how much in total do you currently have in long-term savings?’ were single households of working age. Data source, Aegon’s Centre for Behavioural Research.
- Tax on your private pension contributions. Data Source, GOV.UK. Accessed February 2024.