Are You Missing Out on Pension Tax Breaks?
Investing tax efficiently is crucial, and while many use ISAs to avoid unnecessary tax, pensions offer valuable tax savings that are often overlooked.
Pension Tax Relief
Pensions are one of the most tax-efficient ways to save for retirement. For UK taxpayers in the 2025/26 tax year, you can get tax relief on pension contributions up to 100% of your earnings or a £60,000 annual allowance, whichever is lower. This means money that would have gone to the government as tax goes into your pension instead.
Inflation and Savings
High inflation risks devaluing your savings over time. Consider investing additional lump sums into your pension to enjoy more in retirement.
Income Variations
Income reductions due to the cost-of-living crisis or self-employment can affect pension contributions and allowable tax reliefs. If you are self-employed, your income will almost certainly vary from year to year, sometimes reducing the amounts you are able to contribute to your pension and your allowable tax reliefs.
Carry Forward Relief
You can use unused allowances from the previous three tax years, known as 'carry forward relief,' to increase your pension contributions and receive tax relief.
Example
Considering the annual allowance was previously £40,000, there potentially is £70,000 unused annual allowance from the previous three years. Added to this year’s £60,000 annual allowance, £130,000 could be contributed to the pension and receive tax relief in the 2024/25 tax year.
| Tax Year | Annual Allowance | Total Contribution | Unused Allowance |
| 2021-22 | £40,000 | £10,000 | £30,000 |
| 2022-23 | £40,000; | £30,000 | £10,000 |
| 2023-24 | £60,000 | £30,000 | £30,000 |
However, unless you run your own limited company, to contribute £130,000, your earnings must be at least equal to that amount in the current tax year.
How We Can Help
Carry forward can be a valuable way to help you avoid unnecessary tax, whether you have additional savings to invest or need to reduce financial commitments temporarily.
If you would like to learn more, please get in touch and stop paying tax unnecessarily.
Approver Quilter Wealth Limited, Quilter Financial Limited, Quilter Financial Services Limited & Quilter Mortgage Planning Limited. Quilter Financial Planning Solutions Limited. May 2025.
Sources:
Pension carry forward annual allowance explained - interactive investor (ii.co.uk)
