Saving for retirement isn’t getting any easier.

The more generous ‘final salary’ pensions of the past are becoming more scarce, while limits on what can be saved inside a pension with tax relief on contributions have been getting tighter.

With a Budget approaching this month, there were rumours that the Government could limit tax relief on pension contributions to just the 20% basic rate for all. That would have meant 40% higher-rate and 45% additional-rate tax payers would have seen a significant reduction in the tax relief from which they currently benefit.

That change has been resisted so far but the trend is clear. Here’s how you can make the most of the system as it stands.

Maximise your regular contributions

It is now not expected that tax relief on pensions will be cut, but it’s clear the Government has been seriously considering the change. It makes sense, therefore, for all to review their pension contributions to ensure they make the most of the system as it stands.

That’s even more true for higher-rate and additional rate taxpayers who can benefit the most from the current system of tax relief.

When saving into your workplace pension, you should ensure you are maximising any matched pension contributions from your employer. This may require contributing more than the default minimum into your pot.

If your workplace pension only applies basic-rate relief automatically, it is important to claim the remaining relief owed through self-assessment.

If you have maximised the benefits from your workplace pension, consider a SIPP (self-invested personal pension) where you will have control over your investment choices.

Could you make a one-off pension injection?

Tax relief on contributions to a pension are restricted by the amount you earn and the Annual Allowance (currently £40,000 for most people) for pension saving. Very high earners may be subject to an even lower limit via the Tapered Annual Allowance - you can read more on that here.  Anyone who has taken taxable income from their pension may also be subject to a lower limit under the Money Purchase Annual Allowance. The Lifetime Allowance (currently £1,055,000) also restricts how much you can build up in pension benefits before a tax charge may apply.

Under normal circumstances, your saving into a pension cannot exceed these limits with tax relief still applying. There is, however, a mechanism for individuals to make much larger one-off payments if they have unused allowance from previous years.

‘Carry Forward’ allows any unused Annual Allowance from the preceding three tax years to be utilised in a one-off contribution, although they must still remain within their Lifetime Allowance. Carry forward payments cannot exceed your earnings for the current tax year, however. There’s more on Carry Forward here.

Set up your pension to grow

Whether you have a workplace pension or a SIPP, you should have some control over how your money is invested. It’s important to ensure that your investment mix suits your circumstances - but with the potential to give you the growth you need.

Sticking to safer assets may feel like the right thing to do but if you have a long time before you want to access your pension - 10 years or more - you could also consider investing in assets such as funds or shares. However, you'll need to be prepared to take more risk, as you could get back less than you invest.

More on pensions


Important information: The value of investments can go down as well as up, so you may not get back the amount you originally invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. You cannot normally access money in a pension until age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.