Tax-Free Retirement: How to Make the Most of Pension Allowances

Your Pension is a Goldmine – Here’s How to Make the Most of It

If you want to retire comfortably while paying less tax, your pension is your best friend. The government gives huge tax perks to pension savers – but are you using them fully? Here’s how to maximise your pension and reduce your tax bill before 2025.

1. The £60,000 Annual Pension Allowance – Are You Using It?

Each year, you can contribute up to £60,000 into your pension and receive generous tax relief. For higher earners, this is a golden opportunity to reduce taxable income.

• Basic rate taxpayers (20%) – For every £80 you contribute, the government adds £20.

• Higher rate taxpayers (40%) – A £100 contribution only costs you £60 after tax relief.

• Additional rate taxpayers (45%) – You can reduce your taxable income by up to 45% through pension contributions.

💡Tip: If you haven’t used your allowance in the last three years, you can carry forward unused contributions and invest even more tax-efficiently.

2. New Pension Inheritance Tax Rules – Plan Ahead!

Big changes are coming in April 2027 that will affect how pensions are taxed when passed to loved ones. Currently:

• If you die before 75: Your pension can be passed tax-free to beneficiaries.

• If you die after 75: Your beneficiaries pay tax at their income tax rate.

However, from April 2027, pensions may become subject to inheritance tax (IHT), potentially exposing your pension pot to a 40% tax bill.

💡Tip: If your pension is a major part of your estate, now is the time to review your pension strategy and beneficiary nominations.

3. Should You Take a Tax-Free Lump Sum at 55?

At age 55 (rising to 57 from 2028), you can withdraw 25% of your pension tax-free. But is it the right move?

🔹Yes, if you need the money – If you have debts or want to reinvest, taking a lump sum can be useful.

🔹No, if you don’t need it – Keeping it invested means it can continue growing tax-free for longer.

If you’re unsure, get in touch today and speak to a financial expert to balance immediate needs vs. long-term growth.