TL;DR
- There’s a simple formula that gives you a ballpark starting point for pension contributions
- The longer you wait to start, the higher the percentage you’ll need to put in
- Your employer contributions count too, so check what you’re already getting
- Small changes now make a bigger difference than you think
You’ve probably asked yourself (or us!) this question before. How much is enough when it comes to your pension? It’s one of the most common money questions we get. Martin Lewis recently put a formula back on everyone’s radar, and while it’s not a magic answer, it is a helpful starting point.
The half-your-age rule
Take the age you started (or start) paying into your pension, halve it, and that’s roughly the percentage of your income you should be contributing for the rest of your working life.
- Start at 20? Aim for 10%
- Start at 30? Aim for 15%
- Start at 40? Aim for 20%
It’s not a perfect science and your circumstances will always affect what’s right for you. But as a rule of thumb, it’s useful to have.
Why does paying into your pension earlier make such a difference?
This is where compound interest comes in. The money you invest early has longer to grow, which means you need to put less in overall to end up in the same place. The longer you leave it, the harder you have to work to catch up.
Think of it this way: starting at 20 and contributing 10% your whole career could leave you in a similar position to someone who waited until 40 and had to find 20% every month. Same destination, very different journey.
What counts as your contribution?
If you’re employed, your employer is more than likely paying into your pension too, so you don’t have to hit that target figure entirely on your own.
For example, if the target is 15% and your employer puts in 5%, you only need to contribute 10% yourself. Always check what your employer is matching before you assume you’re behind.
What if you’re self-employed?
Over 3 million self-employed people in the UK aren’t currently paying into a pension. Auto-enrolment doesn’t apply to you, which means nobody’s doing it on your behalf. It’s entirely on you to set something up, and that’s exactly why it keeps getting pushed down the to-do list.
“You’ll always find a bill to put ahead of yourself.” — Laura, co-founder of Financielle
The good news is that it’s more straightforward than it sounds. Here’s where to start.
Open a SIPP
A Self-Invested Personal Pension (SIPP) is the most common pension option for self-employed people. You choose how much to pay in and when, which works well when your income fluctuates. The government still tops up your contributions with tax relief (meaning a £100 contribution effectively costs you £80 as a basic rate taxpayer), so you’re not doing it alone.
- PensionBee is simple, low admin, great if you want to set it and forget it
- Hargreaves Lansdown is solid if you want more investment choice
- AJ Bell has competitive fees and is good for beginners
Treat it like a household bill
The biggest barrier for self-employed people is inconsistency. One month you’re paying in, the next you’ve forgotten, or cash flow is tight. Try setting up a standing order on the day you pay yourself, even if it’s a small amount. Automating it removes the option entirely.
Use a percentage, not a fixed amount
Because self-employed income can vary, a fixed monthly contribution can feel unmanageable in a quiet month. Instead, try committing a percentage of whatever you earn. It scales with you.
The formula still applies. The age you start, halved, is still your target contribution percentage. The difference is that you’re building it yourself — which makes starting sooner even more important.
What if you can’t hit the number right now?
You don’t have to get there overnight. Start with what you can, even if it’s just 1% more than you’re paying now, and build from there.
“Most women I speak to have no idea what they’re paying into their pension, let alone whether it’s enough. Nobody taught you this, so of course you don’t know. Use this formula as your starting point, then go and actually log into your pension today.” — Laura, co-founder of Financielle
This content is for general information only and does not constitute financial advice. If you need advice tailored to your personal circumstances, please speak to an authorised financial adviser.