Retirement planning – preparing for the future
Maximise tax relief on your pension contributions by using all of your annual allowance. The annual allowance for 2026/27 is £60,000, but you can also use surplus allowance from the previous three tax years (see the following tip). To avoid an annual allowance tax charge on excessive pension contributions, the pension contributions you make yourself, plus those made by your employer on your behalf, must be covered by your available annual allowance. Beware that if your income is more than £200,000, your annual allowance may be restricted to an amount between £60,000 and £10,000, depending on how much your employer and you yourself put into your pension scheme. Your annual allowance is also restricted if you have already drawn more than the tax-free amount from a money purchase pension scheme. Always take professional financial advice before making a significant investment. Take advantage of your unused annual pension allowances from earlier years. You can bring forward unused pension allowances of £60,000 a year for the past three tax years to boost your allowance for the current year (2026/27). This allows you to pay pension contributions of up to £240,000 – and still enjoy full tax relief on those contributions at your marginal tax rate. However, the total tax relievable pension contributions are also limited by your taxable earnings for the year. The calculations can be complex, so it is best to do your pension planning well before the end of the tax year. EXAMPLE Jane earns £100,000 per year and is opted into her workplace pension scheme. The pension contributions made by Jane and her employer amount to £10,000 per year (Jane contributing £4,000, and her employer £6,000), and this has been the case for the past three years. During May 2026, Jane won £100,000 on the premium bonds and wishes to maximise her pension contributions for 2026/27. Jane’s financial adviser calculates that Jane has unused annual allowances of £200,000 in 2026/27 being £50,000 (£60,000 – £10,000) a year for 2023/24 to 2026/27. Jane can pay up to £96,000 (£100,000 – £4,000) in additional pension contributions for 2026/27 as her total contributions are limited by her total earnings. Ask your employer to pay pension contributions to top up your pay. If you are due a pay rise and do not need the extra money day to day, you could ask your employer to pay the increase as a contribution directly into your pension scheme (a salary sacrifice arrangement). The employer receives tax relief for the contribution and there is no income tax or any NICs to pay – a saving for both you and your employer. You must
agree in writing to adjust your salary before the revised pension contributions are paid for this arrangement to be tax effective. Take advantage of this opportunity now as salary sacrifice to fund pension contributions will in effect be capped at £2,000 a year from 2029/30. Make pension contributions or charitable gifts to retain your child benefit. Child benefit is clawed-back as a tax charge when the higher earner of a couple has adjusted net income over £60,000. You can reduce your annual adjusted net income to below this threshold by making pension contributions or charitable donations under Gift Aid. At this level of income, making pension contributions or charitable donations will also give you tax relief at the higher rate. TIP You can carry forward unused pension allowances from the three previous tax years and use these to cover pension contributions greater than the current year’s annual allowance.
CHECKLIST
Maximise the use of your pension annual allowance to benefit from tax relief Plan to make use of unused pension annual allowances from earlier years Consider a salary sacrifice arrangement to benefit from tax and NIC savings Reduce net income for child benefit purposes by increasing your pension contributions and/or charitable donations
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