How to Maximise Your Pension Contributions For Tax Efficiency

With the right pension contribution strategies for retirement, you can make your money work smarter, not just harder.

Understanding your annual allowance

Your first step towards maximising pension contributions for tax efficiency starts with knowing your limits. For the 2025/26 tax year, you can contribute up to £60,000 annually to pension schemes while receiving full tax relief, provided your adjusted income doesn't exceed £260,000. This includes both your own contributions and any made by your employer.

If you earn less than £3,600 annually, don't worry – you can still contribute £2,880 into your personal pension and receive £720 in tax relief, bringing your total contribution to £3,600. This makes pensions one of the best ways to save on pension taxes, even for those with modest incomes.

Tapered annual allowance

High earners need to be particularly careful. If your adjusted income exceeds £260,000, your annual allowance reduces by £1 for every £2 you earn above this threshold, with a minimum allowance of £10,000. This means the wealthy face tighter constraints, making strategic pension planning even more crucial

Unlocking higher rate tax relief

Basic rate taxpayers automatically receive 20% tax relief, but higher and additional rate taxpayers must actively claim their full tax relief entitlement. Higher rate taxpayers can claim an additional 20% tax relief, while additional rate taxpayers can claim an extra 25%.

HMRC introduced a new online service in February 2025 making it easier than ever to claim this relief, either through the government's online tool or via your Self Assessment return.

The power of salary sacrifice

Want to supercharge your pension contributions while reducing your tax burden? Salary sacrifice could be your secret weapon. This arrangement works by formally reducing your contractual salary in exchange for your employer making equivalent pension contributions directly. This saves both you and your employer National Insurance contributions.

Carry forward: Your secret time machine

Life isn't always predictable, and neither is your income. That's where the carry forward rule becomes invaluable. You can use unused annual allowance from the previous three tax years, potentially allowing you to contribute up to £200,000 in a single year if you have sufficient unused allowances.

Money Purchase Annual Allowance (MPAA)

If you've already started accessing your pension flexibly, your future contribution allowance drops to just £10,000 annually, forever. This restriction aims to prevent pension recycling, so plan carefully before making any flexible withdrawals from your pension pot.

Taking action today

The best pension strategies combine immediate tax efficiency with long-term wealth building. Start by reviewing your current contributions against your annual allowance, consider whether salary sacrifice could benefit you, and ensure you're claiming all available tax relief.

Contact our financial planning team today to maximise your pension contributions and minimise your tax bill.

The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.