Retirement planning investment opportunities in the current tax year

Warren Bentham, a Chartered Financial Planner in our Wilmslow office, expands on the opportunity for people saving for retirement to maximise their levels of saving in the current tax year.

Making the most of your allowances is the cornerstone of financial planning. Typically, once they’re gone, they’re gone, so it’s important to check you’re not missing out.

Personal Allowance & Income Tax Planning Using Pension Contributions

For anyone paying higher or additional rates of tax, an effective pension contribution strategy could help you to maximise available tax reliefs on payments made, as well as potentially lowering your effective marginal rate of income tax and even regaining any lost personal allowance as a result of your level of earnings.

This example shows the effect of an individual with expected gross earnings of £120,000 making a one-off £20,000 gross lump sum pension contribution:

No pension contribution

£20,000 gross payment

Personal allowance



Income tax payable



Net pension contribution made



Net income available
(ignoring National Insurance payments)



This person could make a gross payment into their pension of £20,000, with a reduction in their net take-home pay, after the net pension payment, of only £8,000. This is through basic rate tax relief received at source of £4,000 and the further reduction in their personal tax liability of £8,000 as a result of the higher rate tax relief due and the regaining of £10,000 of their personal allowance. This results in an immediate effective return of £12,000 (equal to 150%) within their pension, even before any investment growth is considered.

The Annual Allowance

The maximum amount you are able to contribute into your pension and receive tax relief is dependent on your available Annual Allowance.

The standard Annual Allowance limit was increased from £40,000 to £60,000 per annum for most individuals at the start of the current tax year. However, this is tapered down to £10,000 for very high earners and limited to £10,000 for those who have flexibly withdrawn taxable benefits from their pension schemes. If you have not fully utilised your Annual Allowance limits in the previous three tax years, you may be able to carry forward any unused allowance to permit a total contribution of up to £180,000 in the current tax year.

Please note that in order to make the maximum calculated contribution level on a personal basis, you would need to have “relevant earnings” of at least this amount in order to be able to claim tax relief on the gross contribution made. This restriction does not, however, apply for contributions made by your employer.

It is important to review your existing pension planning strategy in line with any changes in your level of ongoing income and in light of the above restrictions, as you may need to adjust your level of retirement contributions to make better use of all of your available allowances and to ensure that you do not incur any unnecessary tax penalties.

Pension Lifetime Allowance Limits

Following the removal of the Lifetime Allowance (LTA) Tax Charge from April 2023, there is no longer a limit on how much you can accrue tax-efficiently within your retirement portfolio. However, unless you hold certain LTA protections, the level of tax-free cash you can withdraw from your pension pots is still limited to a total of £268,275, and any balances withdrawn above this amount would be subject to income tax at your applicable marginal rate of tax.

Despite the limitations in the level of tax-free cash you can withdraw, there are several reasons for accruing further funds within your pensions:

  1. Tax relief is received on contributions made into your pensions. If you expect to pay tax at a lower rate in retirement, you could benefit from making additional contributions prior to retirement, even if these payments are subsequently withdrawn within a short period of time.
  2. As with ISA holdings, the growth achieved within your pension funds is accrued free of both income tax and capital gains tax, with tax only potentially becoming due at the point at which your funds are withdrawn from the pension wrapper.
  3. In the event of your death prior to age 75, any benefits paid to your beneficiaries would normally be available to them tax-free. After age 75, these benefits can still be paid to your beneficiaries, however, they would incur income tax on the withdrawals at their marginal rate of income tax.
  4. The value of your pension assets would not normally form part of your estate for IHT purposes in the event of your death. As such, any additional contributions made to your pension plans could potentially reduce the value of your taxable estate for IHT purposes.

This article does not constitute financial advice. Please speak to a Wren Sterling financial planner for a detailed review of your personal circumstances to see whether the content is applicable to you.

Warren Bentham
About the Author

Warren is an experienced, senior paraplanner with over 23 years’ experience in financial services. He holds the Advanced Diploma in Financial Planning, has been awarded Chartered Financial Planner status, and is a Fellow of Personal Finance Society. He was named the Personal Finance Society Paraplanner of the Year in both 2013 and 2016 as well as collecting various other awards and accolades over the years. As well as providing a financial research and technical report writing service to the advisers in Wren Sterling's Wilmslow office, he remains certified as a financial adviser and continues to provide tailored financial advice to a number of long standing personal clients.