It’s never too early to plan for retirement. If you dream of days waking up without an alarm and afternoons spent on your hobbies, then it’s time to start contributing to your pension.
But for busy business owners, pension planning is probably the last thing on your mind.
While there’s no “magic” number to invest into your pension pot, we typically recommend that business owners aim for around 15% of their pre-tax income. Another popular method is the “half your age” method, in which you contribute a percentage equal to half your age.
The exact amount you should contribute to your pension depends on your personal circumstances, business structure, income, and future plans.
Keep reading as we explore the figures you need for a comfortable retirement and the various ways to contribute to your pension savings before you reach that milestone.
If you’re a sole trader or director of a limited company and looking for personalised advice, contact Ascott Blake today to start tax planning.
Why should business owners focus on building a pension pot?
As a business owner or self-employed individual, you don’t usually benefit from generous workplace pensions or automatic employer contributions in the same way employees do. That makes pension savings even more important.
While you may qualify for the state pension, it’s unlikely to provide enough income on its own to support a comfortable retirement. The full new state pension currently provides a modest guaranteed income, and your state pension entitlement depends on your National Insurance record.
For most people, the state pension is best viewed as a foundation, not a full solution.
Benefits of building your own pension pot:
- More control over your retirement income
- A safety net for your future
- Flexibility over when and how you retire
- Access to valuable tax relief
- Compounding interest (your pension sum naturally grows over time)
Even small, consistent payments can grow into a good pension pot over time.
How much retirement income should you be aiming to build?
Before you can decide how much pension you need, it helps to work backwards. Start by thinking about how much income you’ll need in retirement, not just how much money you want in your pension pot.
Your target income depends on:
- Your lifestyle expectations
- Whether your mortgage will be paid off
- Planned retirement age
- Other savings or investments
- State pension income
As a general rule, many people aim to replace between 60% and 80% of their pre-retirement earnings, though this varies widely, especially if you’re aiming for a lavish retirement.
Below are some examples of how different retirement lifestyles might look in the UK for both a single person and a couple. These figures are illustrative and assume retirement at state pension age, including entitlement to the full new state pension, and a mortgage-free home.
| Retirement lifestyle | Approximate annual income needed | Estimated pension pot required* | What this level of income could cover |
|---|---|---|---|
| Basic lifestyle | Single person: £15,000 – £18,000 Couple: £22,000 – £26,000 | Single person: £150,000 – £200,000
Couple: £250,000 – £300,000 | Covers essential living costs such as utilities, food, council tax, and basic transport. Limited discretionary spending, with little room for holidays or larger purchases. |
| Comfortable lifestyle | Single person: £25,000 – £30,000
Couple: £38,000 – £42,000 | Single person: £300,000 – £450,000Couple:£500,000 – £650,000 | Supports a more relaxed lifestyle with regular socialising, hobbies, UK or occasional overseas holidays, reliable transport, and more resilience against rising living costs. |
| More affluent lifestyle | Single person: £40,000+
Couple: | Single person: £600,000 – £800,000+
Couple: | Allows for frequent travel, dining out, premium leisure activities, home improvements, gifting, and greater financial flexibility throughout later life. |
*Estimates assume a mix of pension drawdown and annuity-style income. Actual outcomes depend on investment performance, annual charges, retirement age, and retirement plans.
These examples are intended as a guide rather than a target. Plus, your own retirement goals may fall between categories, and the right contribution level will depend on when you start saving, how long you plan to work, and how much flexibility you want in later life.
If you’re starting later, you may need to contribute more each tax year to reach your target income.
What pension schemes are available to business owners?
As of 2026, there are several pension routes available, ranging from simple personal plans to more advanced structures that can even support your business directly.
The current landscape is shaped by the 2025/26 tax year rules, including an annual pension allowance of £60,000 (subject to earnings and tapering). Choosing the right pension depends on your business structure, income level, and how hands-on you want to be with investments.
These are the main pension options we recommend to businesses starting out.
Self-invested personal pensions (SIPP)
SIPPs are like a DIY pension, allowing you to choose when and how your pension savings are invested. With a SIPP, you can invest in a wide range of assets, including shares, funds, ETFs, and commercial property (subject to rules).
They are high-risk, high-reward, meaning your investments can go up, but they can also go down.
Ideal for: Self-employed individuals and directors who want control over their pension and are confident and knowledgeable about investing on their own.
Stakeholder pension
A stakeholder pension is a type of personal pension designed to be accessible and easy to manage. They have low minimum contribution requirements, and you can pay into them in multiple ways, including monthly, weekly, or less frequently.
While they are simple and predictable, they offer less investment choices than SIPPs and are best suited to those who want a “no-frills” approach to pension saving.
Ideal for: Self-employed individuals with fluctuating income who may not be eligible for other pension schemes or who need flexibility in how and when they contribute.
Small self-administered schemes (SSAS)
Small self-administered schemes (SSAS) are more complex and are typically limited to 11 members. They are often used by company directors, sole traders, and family businesses.
SSAS arrangements tend to require careful administration and professional advice, but for the right business owner, they can be extremely effective.
Ideal for: Company directors and family-run businesses who want their pension to play an active role in their company’s growth.
NEST (National Employment Savings Trust)
The National Employment Savings Trust (NEST) is the government-backed pension scheme originally created for auto-enrolment, but it’s also available to business owners. It’s known for its low fees and ease of use, making it a practical option if you want your pension savings to tick along quietly in the background.
Ideal for: Self-employed individuals and solo directors with no employees looking for a simple, low-cost pension without managing active investments.
Executive pension plans (EEPs)
An executive pension plan is a more bespoke pension scheme aimed at company directors or senior employees. They offer more benefits and flexibility than standard pension schemes, allowing higher contributions, tax benefits, and more control over investment choices and how benefits are taken.
Ideal for: Company directors looking for a tax-efficient pension scheme that can handle higher contributions and allow for customised investment strategies.
Can I use extra money from my business to fund pension contributions?
Yes, and it’s often tax beneficial.
If you run a limited company, your business can pay into your pension on your behalf. These are typically treated as an allowable business expense, which means they can reduce your Corporation Tax bill. Unlike a salary, pension contributions don’t usually attract National Insurance, and they aren’t treated as personal income when paid.
This can make pension funding more efficient than taking extra money out of your business as salary or dividends, particularly if your business has spare cash that you don’t need immediately.
Is paying into a personal pension or private pension tax-efficient?
Most of the time, yes. Pension contributions are one of the most tax-efficient ways to save for retirement.
Key tax benefits include:
- Tax relief on personal contributions
- Employer contributions are deductible for Corporation Tax
- Investment growth is largely free from tax
You’ll also usually be able to take up to 25% of your pension as a tax-free lump sum when you reach retirement age. Doing so can give you flexibility later in life, whether you want to clear a mortgage, boost your income, or simply enjoy a bit more freedom.
That said, there are limits to keep in mind. There’s an annual allowance, which caps how much you can contribute each tax year before extra tax charges apply. This limit can vary based on your earnings and personal situation, so it’s always best to speak with a qualified accountant like the team at Ascott Blake.
Need help working out the right pension contribution?
At Ascott Blake, we help busy business owners like you decide how much to pay into your pension. Our services are more than a numbers exercise. We make sure your pension is entirely personalised around your individual circumstances. The aim is to align your financial goals, retirement plans, and business strategy, and to include pension funding as part of your wider tax plan.
Call us today on 01279 797 222 or complete our enquiry form and let’s start planning your future.
Frequently asked questions about pension contributions
How often should I review my pension contributions?
We suggest reviewing your pension plan at least once a year. And for many business owners, it makes sense to do it before the end of the tax year, when you can still make changes and use any available allowances.
It’s also wise to review your pension whenever something changes, such as a jump in profits, a change in your business structure, a shift in your personal retirement goals, or a change in pension rules.
