Pension Contribution Strategies

Key facts

The annual pension allowance is £60,000 for 2026/27 (or 100% of earnings if lower).
The lifetime allowance was abolished from April 2024.
You can carry forward unused allowance from the previous three tax years.
Employer pension contributions are Corporation Tax deductible and not subject to NI.
Higher-rate taxpayers get 40% tax relief on personal pension contributions.

The Annual Allowance (2026/27)

The annual allowance sets the maximum tax-relievable pension contributions in a tax year. For 2026/27, it is £60,000 (increased from £40,000 in April 2023). This includes both your personal contributions and any employer contributions.^[1]

If your relevant UK earnings are less than £60,000, your personal contributions are limited to 100% of your earnings. However, employer contributions are not restricted by your earnings level.

Lifetime allowance abolished: The lifetime allowance (previously £1,073,100) was fully abolished from 6 April 2024. There is no longer a cap on how much your pension fund can grow tax-free, although the tax-free lump sum is generally capped at £268,275.^[2]

How Pension Tax Relief Works

Pension contributions receive tax relief at your marginal rate:

Your Tax Band	Relief Rate	Cost of £1,000 Gross Contribution
Basic rate (20%)	20%	£800 (you pay £800, scheme claims £200)
Higher rate (40%)	40%	£600 (scheme claims £200, you claim £200 via SA)
Additional rate (45%)	45%	£550 (scheme claims £200, you claim £250 via SA)

Higher-rate and additional-rate taxpayers must claim the extra relief through their Self Assessment tax return.^[1]

Carry Forward: Using Unused Allowance

If you did not use your full £60,000 allowance in the previous three tax years, you can carry the unused amount forward. You must use the current year’s allowance first, then carry forward from the earliest year available.

Example: You contributed £20,000 in each of the last three years. Your unused allowance is £40,000 × 3 = £120,000. Adding your current-year £60,000, you could contribute up to £180,000 in 2026/27 (subject to having sufficient earnings for personal contributions, or making them as employer contributions).

Note: For years before 2023/24, the annual allowance was £40,000, so carry-forward amounts reflect the allowance in each specific year.

Employer Pension Contributions

If you run a limited company, employer pension contributions offer significant advantages:

They are Corporation Tax deductible — saving 19% or 25% CT
They are not subject to employer NI (saving 15%)
They are not subject to employee NI or Income Tax for the employee
They are not limited by your salary level

Worked Example

Your company has £60,000 available. Compare paying it as salary vs an employer pension contribution:

Item	As Salary	As Employer Pension
Gross amount	£60,000	£60,000
Employer NI (15%)	−£7,143	£0
Employee NI (8%/2%)	−£3,641	£0
Income Tax (20%/40%)	−£11,432	£0
Corporation Tax saving	Included	Included
Value received	£37,784 net pay	£60,000 in pension

Salary Sacrifice Arrangements

With salary sacrifice, you contractually reduce your salary and your employer pays the difference into your pension. Benefits include:^[3]

You save employee NI on the sacrificed salary
Your employer saves employer NI on the sacrificed salary
Many employers share their NI saving with employees via a higher pension contribution
Your reduced salary could bring you below certain tax thresholds

Watch out: Salary sacrifice reduces your official salary. This may affect mortgage applications, statutory pay (maternity, sick pay), and any salary-linked benefits. Your post-sacrifice salary should not fall below the National Minimum Wage.

The Tapered Annual Allowance

High earners may have a reduced annual allowance:^[2]

Threshold income over £200,000 and adjusted income over £260,000 triggers the taper
The allowance reduces by £1 for every £2 of adjusted income above £260,000
The minimum tapered allowance is £10,000 (reached at adjusted income of £360,000)

Key Pension Strategies

Company directors: Use employer contributions instead of personal contributions to avoid NI
Higher earners: Carry forward unused allowance for a large one-off contribution
Employees: Use salary sacrifice to save employee and employer NI
Pre-retirement: Maximise contributions in your highest-earning years for maximum relief
Couples: Both partners should use their individual allowances

Frequently Asked Questions

How much can I put into a pension in 2026/27?

You can contribute up to £60,000 per year (the annual allowance), or 100% of your relevant UK earnings if lower. If you have unused allowance from the previous three tax years, you can carry it forward to contribute more. Employer contributions are not limited by your earnings but count towards the annual allowance.

Is salary sacrifice into a pension tax-efficient?

Yes. With salary sacrifice, you give up salary in exchange for an employer pension contribution. This saves both employee NI (8%) and employer NI (15%). The employer NI saving is often shared with the employee via a higher pension contribution, making it more efficient than a personal contribution.

Can my company contribute to my pension without me having salary?

Yes. Employer contributions are not limited by your salary level. Your company can make contributions up to the annual allowance (£60,000) as a deductible business expense, even if your salary is very low. The contribution must pass HMRC’s “wholly and exclusively” test.

What is the tapered annual allowance?

If your “adjusted income” exceeds £260,000, your annual allowance is reduced by £1 for every £2 above that threshold, down to a minimum of £10,000. This applies when your “threshold income” also exceeds £200,000.

Sources

Tax on your private pension contributions — GOV.UK
Pension schemes rates — GOV.UK
Salary sacrifice — GOV.UK