How Pension Contributions Can Help You Pay Less Tax in 2025/26

Want to know a simple way to pay less tax in 2025/26?

By making pension contributions, you may be able to receive tax relief on contributions of up to 100% of your annual earnings.

Not only can this reduce your tax bill each year, it also helps you build your retirement fund.

Why Pension Contributions Are Tax Efficient

If your income takes you into the higher tax rate band, pension contributions can be particularly valuable. With the right level of contribution, you may be able to reduce your exposure to higher rate tax. Like most employees, you may already be enrolled in a workplace pension scheme, where contributions are taken from your pay before tax is deducted. This means you usually receive tax relief automatically at your highest rate. This is known as a Net Pay Arrangement and is common in workplace pensions. If you make contributions after tax is deducted, your pension provider will usually claim basic rate tax relief (20%) and add this to your pension pot. If you are a higher or additional rate taxpayer, you may be able to claim further relief through your Self Assessment tax return. These are known as Relief at Source pensions and are commonly used for private pensions and SIPPs. Contributions can also be made by others, such as a partner or family member, and tax relief may still apply.

How much can you contribute in 2025/26?

Pension contributions are tax-efficient up to certain limits. You can contribute:

• Up to 100% of your earnings, or
• £60,000 per tax year, whichever is lower

This includes:

• Your own contributions
• Employer contributions
• Tax relief added

If you exceed the annual allowance, a tax charge may apply.

Received a bonus this year?

This can be a good opportunity to increase your pension contributions, maximise tax relief, and grow your pension pot. In some cases, you may also reduce National Insurance if your employer pays the bonus directly into your pension.

I don’t pay any tax, can I still contribute?

Yes. If you earn below your personal allowance, or are not currently working, you can contribute up to £2,880 each year. You will still receive 20% tax relief, giving a £3,600 gross contribution. There is an age limit for tax relief. If you are over 75, you can still make pension contributions, but you will not receive tax relief.

Annual Allowance

The Annual Allowance is the maximum you can contribute to pensions in a tax year before a tax charge may apply.

• The standard allowance is £60,000
• It applies across all your pensions combined
• It includes contributions made by your employer or others

If you have not used all of your allowance in the previous three tax years, you may be able to carry forward unused amounts. To do this:

• You must have been a member of a registered pension scheme
• You must have sufficient relevant UK earnings in the current tax year

Unused allowances must be used in order, starting with the earliest year. For example, if you have been in a pension scheme for the past three years and have not made any contributions during that time, you may be able to contribute up to £220,000 in the current tax year, subject to your earnings and eligibility. In some cases, this can allow significantly higher contributions in the current tax year. If you are a high earner, your annual allowance may be reduced under tapering rules, depending on your level of income.

Need help with pension contributions?

Pension contributions can be a valuable part of your tax planning, but the rules can be complex and depend on your individual circumstances. If you would like advice on how much you can contribute or how to maximise your tax relief, we would be happy to help. Get in touch today to discuss your situation and plan ahead for the 2025/26 tax year.

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Frequently Asked Questions

How much tax relief can I get on pension contributions?

Tax relief depends on your income tax band. It can be up to 45% for additional rate taxpayers.

Can pension contributions reduce my tax bill?

Yes. Pension contributions can reduce your taxable income, which may lower the amount of tax you pay.

Can I contribute more than £60,000?

In some cases, yes. You may be able to use unused allowances from previous tax years, subject to eligibility.

Do I need to claim tax relief myself?

If you are a higher or additional rate taxpayer using a private pension, you may need to claim additional relief through your Self Assessment tax return.