By taking advantage of pension contribution rules and tax reliefs, you can optimise your retirement savings while reducing your tax liability for the current tax year.
Saving for your retirement
Maximising your pension contributions before the end of the tax year is one of the most effective ways to reduce your taxable income and save for retirement. Pension contributions benefit from tax relief, which can make them particularly attractive for higher earners.
For the 2025/26 tax year, the annual pension allowance remains at £60,000. This includes all contributions you, your employer, and any third parties make. However, this allowance may be tapered for individuals with threshold income over £200,000 and an adjusted annual income of over £260,000, reducing by £1 for every £2 above this threshold. The minimum annual allowance for high earners is £10,000, which applies to those with a total income of £360,000 or more.
Suppose you had a pension scheme during a previous tax year but didn’t fully use your allowance. In that case, you can carry forward unused amounts for up to three years, provided you meet the eligibility criteria.
Key considerations
- Carry forward unused allowances: Review any unused allowances from 2022/23, 2023/24, or 2024/25 tax years to see if you can contribute more this year.
- Tax relief for higher earners: Ensure you claim any additional tax relief on pension contributions. Higher-rate taxpayers can claim an extra 20% tax relief, and additional-rate taxpayers can claim 25%, often via self-assessment.
- Inheritance tax benefits: Pension funds are typically excluded from your estate for inheritance tax purposes. Maximising contributions can help with long-term estate planning.
- Over-55s considerations: If you’re over 55 and considering accessing your pension, ensure you understand the potential tax implications, such as triggering the money purchase annual allowance (MPAA), which limits future contributions to £10,000.
Important deadlines
Ensure all contributions are paid into your pension scheme by 5 April 2025 to qualify for tax relief in the 2024/25 tax year. Employer contributions must be paid before the company’s financial year-end to receive corporation tax relief in the same accounting period.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.