A financial expert has highlighted how changing your pension contributions can help reduce your tax liability. Hannah Martin, pensions expert and founder of Rich Retiree, shared key principles for building retirement savings efficiently.
Maximizing Tax Benefits
Martin emphasized that the best way to build a private pension is to take full advantage of the tax benefits. She advised contributing as much as possible and letting compound returns work until retirement.
Salary Sacrifice
For employed individuals, Martin recommended salary sacrifice, where a portion of your salary goes directly into your pension. This reduces your income, lowering National Insurance and income tax payments, while the pension contribution still benefits from tax relief.
Tax relief on pensions means your provider automatically claims back the 20% basic rate tax. Higher-rate (40%) and additional-rate (45%) taxpayers must claim extra relief through self-assessment.
Using Unclaimed Allowances
The annual allowance for tax-relieved pension contributions is £60,000 or 100% of income, whichever is lower. However, unused allowances from the past three years can be carried forward, potentially allowing contributions of up to £240,000 in the current tax year. The current year's allowance must be used first.
State Pension Considerations
Martin also noted the state pension, currently £241.30 per week for the full new state pension, increasing annually via the triple lock. The state pension age is rising from 66 to 67 between April 2026 and April 2028. Individuals can check their forecast on the Government website.
