One of the most popular questions when it comes to personal pensions is "How much should I start paying in?". Unfortunately, there isn't a simple answer because it depends on so many factors and so the answer will be different depending on who is asking the question. For example, how old are you? When do you want to retire? How much can you realistically afford to pay in? In this article, I explain how you can build a sizeable pension pot by paying in relatively small amounts. I explain the importance of starting early, keeping costs low and how to take advantage of the power of compounding.
Importance of starting early
The classic problem with retirement planning is that people put off dealing with it until it is looming on the horizon. By that point, it is extremely difficult to build a pension pot sufficient enough to give you the retirement you want, especially if you are starting from scratch. People are told to build a sustainable pension income but how can you do it realistically? For the rest of this article, I will ignore the state pension until the very end as there is no guarantee that it will be around in its current form by the time you retire.
Before we start, you may also be interested in our articles:
- How much income could I get from a £100,000 pension pot?
- How much do you need to retire and what will your pension be worth?
- How to get £30,000 a year pension by saving just £55 a month
Start with a realistic expectation
Most people do not have a realistic concept of how much money they need to have saved in order to have a decent retirement income. To help, the Pensions and Lifetime Savings Association (PLSA) regularly updates its Retirement Living Standards. For 2026, the PLSA defines three levels of post-tax income for a single person:
- Minimum (£13,900 a year): Covers basic needs with a little left over for fun.
- Moderate (£32,700 a year): Provides financial security, running a small car, and a two-week European holiday.
- Comfortable (£45,400 a year): Allows for financial freedom, replacing a car regularly, and luxury holidays.
Wealth manager Quilter then took this PLSA research and did some further analysis to calculate exactly how large a pension pot you need to achieve these lifestyles. Quilter based its calculations on a single person retiring at age 66. Crucially, Quilter's calculations take the full State Pension into account right from the start. The current full State Pension is £12,548 a year, so Quilter calculated how large a private pension pot you need to generate the rest of the income. They concluded you need a private pot of £691,000 for a Comfortable retirement, or a private pot of £413,000 for a Moderate retirement.
Only you can decide how much of a retirement income you want. But using Quilter's figures above you can get a sense of the size of the savings task ahead. Yet you shouldn’t get too downhearted as you can stack the odds of achieving your desired retirement income in your favour. I show you how in the rest of this article.
Ditch the idea of raiding your pension
Let's say you want to achieve the 'Comfortable' benchmark. You will need that staggering £691,000 pot. That is a lot, and that assumes you use the entire pot to produce income and do not take 25% of it as a tax-free lump sum and blow it. If you want a comfortable income and a maximum tax-free lump sum to spend, you would need an even larger pot.
Yet most people will have paid off their mortgage by the time they retire, meaning you won't need money to pay your mortgage each month once you retire.
If we ditch the idea of raiding your pension for a lump sum, and target the highly achievable 'Moderate' lifestyle standard, the required private pension pot drops down to £413,000. When combined with the full £12,548 State Pension, a private pot of this size generates a gross income of roughly £37,700 a year, which is very close to the UK average salary.
Start paying into a pension early
Now the power of compound returns means that the earlier you start putting money into a pension the less you have to save a month. Assuming an average annual investment return of 5%, to get a pension pot worth around £413,000 by age 66 you would need to save:
- £350 a month if you are aged 30
- £650 a month if you are aged 40
- £1,410 a month if you are aged 50
These are big numbers but by starting early you can more than halve your required monthly contributions.
Keep charges low
Now the above figures assume that you pay an annual charge on your pension (be a personal pension or a SIPP) of around 1.5%. Yet these days it is possible with passive funds to get the annual charge much lower. Charges have a huge impact on the size of your pension fund over time.
If in my example above the 30 year old cut their charges from 1.5% down to 0.5%, then rather than their pension pot being worth around £413,000 when they hit 66, it would be worth over £515,000, which could provide a much bigger income. Alternatively, it could mean that they could reduce their pension contributions to £280 a month to achieve the original £413,000 objective.
Investment risk
Now one of the benefits of starting to save for retirement early is that you can take a little more risk. The above figures assume a conservative average return of 5% a year. If that 30 year old took more risk and the average annual return was say 8% a year, then it would mean they would only need to save £175 a month and still achieve the required £413,000 pot, as mentioned earlier.
Of course there is no certainty of achieving 8% a year return, but if your investment timeline is 36 years (as it is for the 30 year old in my example) you can take more risk. Older savers can’t do this.
Save via a pension & get tax relief
Retirement saving doesn’t have to be done via a pension it can be achieved using Stocks and Shares ISAs. The downside of ISAs is that you don’t get tax relief on the way in, but the plus side is that you don’t get taxed on the way out and you can access it at any time.
Yet with a relatively modest pension income requirement most of it will be tax-free anyway when you come to draw it. To save for retirement using a pension you have to be happy that you won’t have access to the fund until you retire (currently age 55, rising to 57 in 2028).
Yet the big plus of saving via a pension is that you get tax relief on the contributions. So for a basic-rate taxpayer, a £175 a month pension contribution will actually only cost them £140 a month out of their take-home pay.
Join your company scheme
If you are employed, over 22 and earn more than £10,000 per year then you will be automatically enrolled in your company's auto-enrolment pension scheme. You'll need to contribute a minimum of 5% and your employer must contribute a minimum of 3%, however, some will contribute more. While you do have the option of opting out, it would be foolish not to take advantage of free money from your employer.
Let's say an employer perfectly matched an employee's pension contributions, then that 30 year old would pay just £70 a month net and get it topped up to £175 by their employer and HMRC (because pension contributions receive tax relief).
So suddenly that unachievable retirement income has got a whole lot more realistic. Other than saving lots of money there is no simple answer to pension saving. The secret lies in doing a number of things mentioned above to stack the odds in your favour. But while you may say that the 8% return is pretty punchy the figures above don’t take into account the fact that you will likely increase your pension contributions as your earnings increase. That would mean you wouldn't need to make 8% a year return on the money invested.
Of course, the final choice is to delay retirement, for example until age 67 or 70. For a lot of older people who have neglected their pension funding, this is an inevitability. But it significantly reduces the amount you need to save for retirement.
Pension vs ISAs
Before the new pension freedoms, ISAs offered the most flexible way to save for retirement. Now the pension versus ISA debate is less clear cut. Using a stocks and shares ISA to save for retirement has the flexibility of allowing you to access the funds in an emergency. So it is a sensible approach to save via ISAs to start with and then when you are sure you don’t need access to the funds move them into a pension to get the tax relief, assuming you have paid sufficient income tax that year.
Yet whichever route you go down, pensions and ISAs are just tax wrappers and the underlying investments can be the same.
Summary
If you follow the examples above, you can hit the £413,000 benchmark for a 'Moderate' retirement by executing every tip in this guide. By starting early, lowering your investment fees, choosing a growth-focused portfolio that averages an 8% return, maximising your 1:1 employer matching scheme, and including your state pension (currently £12,548 a year), the actual out-of-pocket monthly cost from your take-home pay drops down significantly:
- A 30 year old needs to put away just £70 a month.
- A 40 year old would need to save £172 a month net.
- A 50 year old would need £454 a month net to reach the same goal.
So take action today and start saving into a pension. I strongly suggest that having come this far that you read our article "How to build a low cost DIY pension" and if you are ready to start looking at the best pension providers, then check out our article "Best pension cashback offers and fee-free deals".
MTTM AI (beta) 
