Saving for retirement isn’t just a smart financial move—it can also be incredibly tax-efficient.
Whether you’re putting money into your own pension pot, contributing on behalf of an employee, or looking at ways your business can support your retirement plans, it’s important to understand the rules around pension contributions for the 2025/26 tax year.
Let’s break down the key facts, so you know exactly what you can contribute—and how to make the most of the tax benefits.
Auto-Enrolment: What Employers Need to Do
If you’re an employer, auto-enrolment means you must automatically enrol certain employees into a workplace pension scheme—and contribute to it.
Here’s what you need to know:
- Auto-enrolment applies to employees aged 22 to State Pension age who earn at least £10,000 a year.
- The total minimum contribution is 8% of qualifying earnings.
- Of that, you must contribute at least 3% as the employer.
- Employees can opt out, but they’ll lose your contributions—so it’s worth highlighting the value of staying in.
Auto-enrolment remains a vital part of long-term employee financial wellbeing, and getting it right helps you meet your legal duties while supporting your team.
Personal Pension Contributions: Your Annual Allowance
Individuals can contribute to a personal pension and get tax relief at their marginal rate—that means basic rate taxpayers get 20% relief, and higher earners can get even more.
You can contribute up to the lower of:
- 100% of your earnings, or
- Your available annual allowance (a minimum of £3,600 if you have low or no earnings)
The Annual Allowance for 2025/26
For most people, the annual allowance is £60,000. But if you’re a high earner, this could be reduced:
- If your threshold income (excluding pension contributions) is over £200,000
- And your adjusted income (including pension contributions) is over £260,000
In this case, your allowance tapers down by £1 for every £2 over the threshold, to a minimum of £10,000.
Carrying Forward Unused Allowances
Haven’t used your full allowance in recent years? Good news—you can carry forward unused allowances for up to three years.
Here’s how it works:
- Use the current year’s allowance first
- Then dip into unused allowances from earlier years (starting with the oldest)
This means, if you’ve not made pension contributions in the past few years, you could contribute up to £220,000 in 2025/26—as long as your earnings allow it.
Just remember: high earners may still be restricted by tapering rules.
Lifetime Allowance Abolished – But There’s a Lump Sum Limit
The lifetime allowance has been scrapped, which means there’s no cap on the total amount you can save in pensions tax-free over your lifetime.
However, the maximum tax-free lump sum you can withdraw is still capped at £268,275, or 25% of your pension pot if it’s lower.
So while the overall savings potential has grown, there are still limits when it comes to accessing your funds tax-free.
Accessing Your Pension and the MPAA
Once you start accessing your pension (currently from age 55), your annual allowance drops to the Money Purchase Annual Allowance (MPAA)—which is £10,000 for 2025/26.
This limit applies to future contributions, so it’s worth planning your withdrawals carefully if you want to continue building your pot.
A Smart Strategy for Directors and Family Companies
If you run a personal or family company, there’s a tax-smart way to build up your pension pot.
Many directors pay themselves a low salary (often £12,570, the personal allowance) and top up income with dividends. But dividends don’t count as earnings when it comes to personal pension contributions.
The solution? Have the company make employer contributions into your pension.
Why it works:
- No 100% earnings cap on employer contributions
- Still counts towards your annual allowance
- Contributions are tax-deductible for Corporation Tax purposes
This makes it one of the most efficient ways to extract profits from your company, while also boosting your retirement savings.
Need Help Maximising Your Pension Contributions?
Pensions can be one of the most tax-efficient ways to save for the future—but only if you understand the rules.
Whether you’re a business owner, director, or just starting to think about retirement planning, we’re here to help you make the most of your pension opportunities.
Get in touch with Jon or the team today to discuss how to use pension contributions to save tax and secure your financial future.
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Any questions?
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