Why pensions are so powerful at tax year end

Pensions benefit from tax relief, meaning the government adds to your contribution.

 

Why pensions stand out among allowances

Because of the tax relief that pensions get, they’re one of the most efficient ways to save for retirement, especially for higher-rate taxpayers.

 

Why timing matters for pension contributions

Tax relief is linked to the tax year, and so is the pension annual allowance. For most people, the annual pension contribution limit is £60,000 or 100% of your earnings for the year, whichever is lower. This includes your own contributions, employer contributions, and tax relief.

Once the tax year ends, you can’t go back and use any unused allowance from that year. That’s why the period before 5 April is such an important checkpoint for pension saving.

 

How pension carry forward works

If you haven’t used your full pension allowance in previous tax years, you may be able to use it now through a rule called ‘carry forward’. Carry forward lets you use your unused allowance from the previous three tax years, as long as you were a member of a pension scheme during those years.

This can be particularly helpful if your income has increased, you’ve received a bonus, or you’re making a one-off contribution. It allows some people to contribute more than the standard annual allowance while still benefiting from tax relief.

 

How to approach pension top-ups before 5 April

Start by reviewing how much you’ve already contributed this tax year. If you think carry forward might apply to you, it can be worth checking previous years’ contributions or speaking to a professional before making a large payment.

Even without carry forward, smaller top-ups can still benefit from tax relief and compound over time.

 

Things to keep in mind

Annual allowance rules, tapered allowances, and carry forward limits can be complex. Pension money is also locked away until later life, so balance your pension savings with shorter-term financial needs.