Maximising Pension Contributions
With the tax year-end approaching, now is the time to review pension contributions and ensure full use of available tax reliefs. The UK tax system provides generous incentives for pension savings, but complex rules—such as the Tapered Annual Allowance—can create unexpected tax liabilities if not managed effectively. Acting before the 5 April deadline can help optimise tax efficiency and long-term retirement planning.
While Independent Financial Advisers (IFAs) focus on investment strategy, a tax adviser can provide a more comprehensive approach, ensuring pension contributions are structured in the most tax-efficient way while considering wider income, allowances, and potential tax liabilities.
Understanding the Tapered Annual Allowance
For higher earners, the standard £60,000 annual allowance may be reduced due to the Tapered Annual Allowance rules. Where adjusted income exceeds £200,000, the annual allowance is gradually reduced to a minimum of £10,000. Any pension contributions exceeding the available allowance are subject to an annual allowance charge, which effectively removes the tax relief on the excess amount.
Optimising Pension Contributions for Tax Efficiency
A range of planning opportunities can help mitigate pension tax charges and maximise available reliefs before the tax year-end.
1. Carry Forward Unused Allowances
Where the annual allowance has not been fully utilised in the past three tax years, it may be possible to carry forward unused amounts and make additional contributions while still benefiting from tax relief. This can be particularly useful for those with fluctuating income or one-off earnings, such as bonuses or dividend payments.
2. Salary Sacrifice for Pension Contributions
Salary sacrifice arrangements allow individuals to exchange a portion of salary for an employer pension contribution, reducing taxable income and National Insurance liabilities. This can be an effective way to improve tax efficiency while increasing pension savings.
3. Employer Contributions & Bonus Sacrifice
Employer pension contributions are not subject to National Insurance, making them a tax-efficient alternative to salary. Where possible, diverting a bonus into a pension before the tax year-end can reduce taxable income while boosting retirement savings.
4. Pension Contributions for a Spouse
Where one individual has lower taxable income or is not using their full personal allowance, pension contributions on their behalf may help to maximise household tax efficiency. Non-earning spouses can receive pension contributions of up to £3,600 gross (£2,880 net) per tax year while still benefiting from basic-rate tax relief.
Key Considerations Before the Tax Year-End
Check the available annual allowance, including any unused carry-forward amounts from the past three tax years.
Review adjusted income levels to determine whether the Tapered Annual Allowance applies.
Consider salary sacrifice arrangements to optimise tax and National Insurance efficiency.
Assess the timing of pension contributions to ensure relief is obtained within the current tax year.
Ensure employer contributions are structured efficiently to minimise overall tax exposure.
Final Thoughts
Pension contributions are one of the most tax-efficient ways to save for retirement, but navigating the rules requires careful planning—especially for higher earners affected by the Tapered Annual Allowance. While an IFA focuses on investment growth, a tax adviser ensures contributions are structured for maximum tax efficiency, helping to reduce liabilities and avoid unexpected charges. Reviewing pension contributions before the 5 April deadline ensures full use of available reliefs and prevents missed opportunities.
With the tax year-end fast approaching, now is the time to act. Contact us today for expert advice on optimising allowances, reducing tax liabilities, and ensuring compliance with pension regulations
