Ten Reasons to Boost Your Pension Before April 2025

By Samuel Mather-Holgate

As the tax year draws to a close, there’s no better time to review your pension contributions and ensure you’re taking full advantage of the tax breaks and allowances available. Even with upcoming changes to inheritance tax (IHT) on pension death benefits, pensions remain one of the most tax-efficient ways to save for retirement and transfer wealth. The numbers speak for themselves, and careful planning now can significantly improve your financial future.

Here are ten reasons why you should consider boosting your pension before the 2025 tax year-end:

1. Annual Allowance: Increased to £60,000

The annual allowance—the maximum amount you can contribute to your pension each tax year and still receive tax relief—has increased to £60,000. This is £20,000 more than in 2022/23, giving you a great opportunity to save more while reducing your taxable income.

Why this matters:
With the personal allowance and tax thresholds frozen until 2028, more people will find themselves in higher tax bands simply due to wage increases. Making pension contributions can help extend your basic rate tax band, potentially reducing the tax on gains or even dropping you into a lower tax bracket.

In Scotland, where tax thresholds differ, pension contributions in the current tax year may attract more tax relief compared to future years, as tax bands are set to increase in 2025/26.

2. Carry Forward Unused Allowances

If you haven’t maximised your annual allowance in previous years, you can carry forward unused allowance from the last three tax years, allowing for a total contribution of up to £200,000—provided you have sufficient earnings. This is an excellent opportunity for those who’ve taken a break from pension funding to catch up.

Example:
A client with no pension contributions for the past three years could now contribute a large lump sum to maximise tax relief and grow their retirement savings. Remember that individual contributions are capped by your current earnings.

3. No Lifetime Allowance Charges

The lifetime allowance (LTA) charge has been abolished, removing a significant barrier for high-net-worth individuals who had previously limited their contributions. Even if your pension exceeds the former LTA, continuing to contribute can be tax-neutral or beneficial.

Why it’s still worth contributing:

• Investment returns in a pension remain free from income tax and capital gains tax (CGT).
• Recent CGT allowance cuts and higher CGT rates make tax-free growth within a pension even more attractive.

4. Enhanced and Fixed Protection: New Opportunities

If you previously stopped pension contributions to maintain enhanced or fixed protection, you can now recommence funding without losing your protection status, provided it was in place as of March 15, 2023. These protections can still provide valuable benefits like higher tax-free lump sums.

Action: If you didn’t contribute in the last tax year, you could use the carry-forward rule to contribute up to £200,000 this year.

5. Avoiding the Tapered Annual Allowance

For high earners, the annual allowance is reduced if adjusted income exceeds £260,000. However, you can restore your full £60,000 allowance by reducing your adjusted income below the £200,000 threshold with a personal contribution. This is particularly useful for business owners or those expecting large bonuses.

6. Bonus Sacrifice: A Smart Move

If you’re expecting a year-end bonus, consider exchanging it for an employer pension contribution. Bonus sacrifice can provide significant benefits:

• No National Insurance contributions on the sacrificed amount for both employer and employee.
• Increased pension savings, turning more of your bonus into retirement funds.

7. Business Owners: Maximise Tax Relief

With the main corporation tax rate at 25%, business owners can benefit from enhanced tax relief on pension contributions. Employer pension contributions reduce taxable profits, making them an efficient way to use company funds.

Example: Rather than taking dividends (subject to corporation tax and dividend tax), business owners can direct profits into a pension, receiving full corporation tax relief.

8. Reclaim Your Personal Allowance

If your income exceeds £100,000, you begin to lose your personal allowance. Pension contributions can reduce your adjusted net income (ANI) and restore your allowance. Contributions that reduce your ANI from £125,140 to £100,000 can result in an effective tax relief rate of 60%.

9. Retain Child Benefit

The entitlement to child benefit is reduced when a household’s highest earner has income exceeding £60,000 and disappears entirely at £80,000. Reducing your ANI through pension contributions can help reclaim or protect your child benefit, providing further tax efficiency.

10. Tax-Efficient Planning for Couples and Families

For couples, it’s essential to maximise higher-rate tax relief before focusing on basic-rate contributions. Few people know they can contribute to their partner’s pension, up to the partner’s earnings limit, and still receive tax relief at the partner’s marginal rate.

Intergenerational planning: Consider making contributions to your children’s or grandchildren’s pensions. Contributions up to £3,600 per year receive tax relief, even if the recipient has no earnings. Regular gifts can also be IHT-efficient if made from surplus income.

Don’t Miss Out on Valuable Tax Relief

Pensions remain one of the most tax-efficient ways to save for retirement. With allowances resetting at the end of the tax year, now is the time to act. Missing these opportunities means losing valuable tax benefits and growth potential.

At Mather & Murray Financial, we’re here to help you make the most of your pension options and develop a strategy tailored to your goals. Contact us today to discuss how we can help boost your retirement savings or BOOK A CALL BACK.