In our Budgeting Clinic series, Tom Francis, head of personal finance at Octopus Money, answers your questions about all things personal finance. Tom is a fully qualified and chartered financial planner. Worried about how your savings are shaping up for the future, or need a plan for how to get out of debt? Drop him an email on money@theipaper.com.
Question: I am 35 and, like many people, I am trying to get my finances in better shape this year. I currently have around a debt of £20,000, mostly from car finance and a mix of loans and credit cards, which I am steadily paying down. My aim is to clear this over the next few years and eventually buy a home.
When I was younger, I reduced my pension contributions to help manage day-to-day costs. More recently, after seeing headlines about people not saving enough for retirement and care costs, I have started to worry that I may now be behind.
I am enrolled in my workplace pension and currently contribute 3 per cent of my salary, with my employer contributing 5 per cent. I am tempted to boost my pension contributions this year to avoid falling further behind, but I am unsure whether it makes sense to do that while I still have outstanding debt. Should I focus on clearing my debts first, or does it make sense to start increasing pension contributions now, even if that means my debt takes longer to pay off?
Answer: You’re not alone in feeling torn between these two priorities. In 2026, many people are trying to get their finances back on track after several years of high living costs, and that often means carrying some debt while also worrying about the future. A busy and expensive Christmas can easily push costs up, and the average Brit takes on £439 credit card debt at this time of year.
Layered on top of that is a pension landscape that looks very different to previous generations. In the past, many people could rely on generous, employer-funded defined benefit schemes that paid a portion of their salary for life, with very little active planning required.
For today’s workers, that safety net has largely disappeared. We are expected to plan for our future selves while also managing the day-to-day reality of rent, bills, transport and debt. That can feel like a double burden.
It is easy to fall into the trap of thinking that this is a straight either-or decision, that you must choose between clearing debt or saving for retirement, and that one choice is clearly right. I will be straight with you, there is no perfect answer.
In many situations, the most sensible approach is not choosing one over the other, but understanding how to balance and sequence them.
Let’s start with your pension, because there is some reassurance here.
You are already enrolled in your workplace pension, which is the most important foundation. You are contributing 3 per cent of your salary and your employer is contributing 5 per cent, meaning 8 per cent of your income is going into your pension each month.
If 5 per cent is the maximum your employer will contribute, then you are already benefiting fully from their support. That is effectively free money, and you are right to make the most of it.
At 35, you also still have time on your side. A commonly used rule of thumb is to take the age at which you first started paying into a pension, halve it, and aim to contribute that percentage of your income over your working life.
I know it is a simplification, but it helps illustrate how valuable starting early can be. If you began contributing around 25, that would suggest a long-term target of roughly 12.5 per cent. You are already at 8 per cent, so you are not as far off as the headlines might make you feel.
Now let’s look at the debt side of the picture.
The most important factor here is the interest rate you are paying. High-interest debt deserves priority because paying it down offers a guaranteed return. If any of your debts are charging interest above around 7 per cent, it usually makes sense to focus on clearing those first.
That is because it is very difficult for long-term pension investments to reliably beat that level of return, especially without taking on additional risk.
The good news is that focusing on high-interest debt does not mean you are neglecting your retirement. Your workplace pension contributions are still going in every month, keeping things moving in the background. You can think of clearing expensive debt as laying the groundwork that will allow you to increase pension contributions more comfortably in the near future.
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Once most of your remaining debt is lower interest, for example car finance at 3 to 5 per cent, and you are comfortably meeting the repayments, increasing pension contributions becomes a much more realistic option again.
A practical and often painless way to do this is to link pension increases to pay rises or promotions. If your salary goes up, nudging your pension contribution up at the same time can improve your long-term position without feeling like a hit to your take-home pay.
It is also worth remembering how generous tax relief can be. For every £100 that goes into your pension, £20 is added by the government if you are a basic-rate taxpayer, or £40 if you are a higher-rate taxpayer.
So, rather than asking whether you should choose debt or pension, it can be more helpful to think about timing. Prioritise clearing the most expensive debt first, keep your pension ticking along in the meantime and use future breathing room, such as cleared repayments or pay rises, as the trigger to increase contributions.
You are not behind. You are engaging with the right questions at the right time, and that alone puts you in a much stronger position than you might think.
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