Pension contribution allowances have changed in the past few years and can vary based on your tax bracket. A pension allowance is the maximum you can contribute to your pension each tax year without incurring additional tax charges.

For 2024-25, the standard Annual Allowance is £60,000. However, this amount can vary depending on your income and whether you have started drawing your pension.

Key point to consider whether thinking about pension contributions include:

• You can receive tax relief on personal contributions up to 100% of your annual earnings (or £3,600 if you have no earnings). The rules for directors are slightly different and are not restricted to salary levels, but there are other considerations.
• If you are a high earner, your allowance may be tapered down to a minimum of £10,000. There are specific calculations to determine if you fall within these rules, but broadly those with income over £200,000 should consider this point.
• You may also be able to carry forward unused allowance from the previous three tax years, if eligible.

At Stratos, we’ll help you determine your current contribution allowance and ensure you’re maximising your tax-free contributions whilst also ensuring the company is benefiting from the tax relief available on any contributions it makes to a pension scheme.

The carry forward allowance lets you carry unused pension contributions from the past three years, giving lower-rate taxpayers an opportunity to contribute more to a future year. This can be particularly useful if you have not maxed out your tax-free contributions in previous years.

Tax relief on your pension, depends on how you contribute to your pension and what type of pension scheme you’re using.

• Tax Relief at Source
  • If you’re contributing to a personal pension (like a SIPP or stakeholder pension through your company), your provider will usually claim basic rate (20%) tax relief on your behalf and add it to your pension pot automatically.
  • If you’re a higher or additional rate taxpayer, tax relief on your pension contributions is only automatic if you’re paying into a net pay pension – this is where your employer takes the full amount of your pension contribution before any tax is deducted.

• Claiming Tax Relief Yourself
  • In some situations, you’ll need to claim tax relief on your pension contributions manually, particularly if you’re entitled to more than the basic rate of relief.
    • You’re a higher-rate or additional-rate taxpayer and your pension provider only claims the basic 20% relief (known as relief at source). This is often a relief that is missed by taxpayers.
    • Your pension scheme isn’t set up to apply tax relief automatically (for example, some occupational or older schemes).
    • Someone else contributes to your pension on your behalf (such as a spouse or family member).
    • You’re contributing more than £10,000 in a tax year and need to check whether you’re within your allowance or eligible for carry forward.

If you need to make a claim for relief then this is usually done via your self-assessment tax return, or if you do not file a tax return then it may be possible to request an adjustment to your tax code.