How much should I pay into my pension?

When it comes to pensions, one of the most common questions is a seemingly simple one: how much should I save?

Of course, rather unhelpfully, the answer is: depends - particularly when you’re self-employed.

How can you plan for the future when your income varies month to month?

In this article, we share how you can work out your optimum pension contribution when you’re self-employed.

Freelancer saving into pension

Calculating pension contributions when you’re self-employed

While how much you should put into your pension really comes to your personal finances, there are a couple of general rules of thumb we can use for guidance. 

They are:

  • Half your age rule
  • Two-thirds rule

Half your age rule

The half your age rule goes like this. 

Take your age and divide by 2. This number (as a percentage) is how much of your pre-tax salary you should into your pension every month.

For example, if you’re 30, you should aim to add 15% of your pre-tax income into your pension every month. For someone earning £35,000 a year, that would mean £300 a month.

Of course, this becomes a little trickier when you don’t have a fixed salary, which brings us onto rule #2.

Two-thirds rule

This rule helps give you a rough guide of how much you’ll need in your pension pot when you reach retirement to support a comfortable lifestyle.

Essentially, to maintain a quality of life similar to your current one, you should try to achieve a yearly income of 2/3rds your current income in retirement. 

Earn £35,000 a year? For retirement, you’ll want around £23,333 a year (before tax) in retirement.

Let’s say you’re aiming for a retirement of 20 years - that means you’ll need a pension pot of £23,333 x 20. A total pot of £466,660.

From there, depending on your age and current pension size, you can roughly work out how much you’ll need to save each month and year to reach that figure. 

Don’t forget to factor in investment returns and tax relief!

Of course, while these methods are helpful guides, what it really comes down to is your personal financial situation.

How much are you spending on rent or your mortgage? Do you have any debt? What are your short, medium and long term goals?

Next, we’ll look at what to do if you’re struggling to pay into your pension.

Pension contributions on a budget

While it is absolutely crucial to start contributing to your pension as early as possible, the reality  (particularly at the moment) is that you may need to focus on the here and now.

Currently in the UK, it feels like barely a day goes by when there isn’t more news affecting our personal finances.

Inflation rates, National Insurance rises, the energy crisis - it’s easy to become anxious just trying to keep up.

One of the ways you may have considered cutting back is your pension. But should you cut back now? What will the impact be long-term?

If you’re struggling to pay your new high energy bills, or need to react to a financial emergency, what should you do about your pension?

You have a few options.

1. Reduce contributions

Your first action should be to see if you can temporarily reduce how much you’re paying into your pension.

If you’ve already set up a self-employed or limited company director pension, you can do this by getting in touch with your pension provider.

Before you do, it’s vital you consider the long-term impact.

Thanks to the power of compound interest, contributing even a little today can become a lot in the years to come.

Of course, you can always increase your contributions again later when things are a little more comfortable.

2. Pause contributions

You can also give yourself some breathing room by freezing your contributions altogether.

Again, you’ll need to speak to your pension provider and you may have to fill out some paperwork. 

Alternatively, you can make irregular payments into your pension. 

If you find it works better for you, you can make a few larger contributions a few times a year, rather than paying in every month.

Many self-employed individuals and freelancers prefer to make a large, one-off contribution into their pension just before the end of the tax year in April.

3. Combine your pots

If you need to adjust, or take a break from, your pension payments, it could be the right time to combine your old pots into one.

If you’ve had a few jobs in your career prior to working for yourself, chances are you’ve left a few pension pots behind in your wake.

As well as making it near impossible to get a complete picture of your financial future, having multiple pensions scattered around could mean you're paying over the odds or investing in a way you’re not comfortable with.

How your pension can beat inflation

One of the main reasons many of us are feeling the pinch right now is the rising cost of living. You’ve no doubt heard about it in the news.

Recently, inflation in the UK hit 7%. This means the price of everyday goods and services we pay for every month are getting more expensive.

If you are lucky enough to have any disposable income left over for savings, one of the best ways to combat inflation is by investing. 

One of the best (and most tax-efficient) ways to do this is with your pension.

Thanks to the power of compound interest, your contributions will have plenty of time to grow, riding out any market dips and giving you enough for a healthy, happy retirement.

If you can afford to, it’s a great way to make sure your hard-earned money retains its value (and even grows) long term.

You can contribute up to £40,000 (or 100% of your earnings) into your pension each year and remember, each contribution comes with 20% tax relief - even more if you’re a higher earner.


Need more help? Self-employment often means having to navigate lots of different websites with no clear source of truth. As the only not-for profit focused on self-employment, IPSE provides impartial and relevant advice on the topics that matter to you.

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Pensions aren’t just a long-term investment to set yourself up for the future. They’re also a fantastic way to make sure you keep more of your hard-earned profits today. Penfold has built a modern, powerful pension that’s easy to use, flexible and only takes a few minutes to set up - no paperwork required.

Penfold is regulated by the Financial Conduct Authority and our customers’ pension holdings are protected by the Financial Services Compensation Scheme.