Most people know they should be saving into a pension. Far fewer know the rules well enough to make the most of them ‒ or to avoid an unexpected tax bill. This article cuts through the noise.
The Numbers First Pension planning without knowing your limits is like driving without a speedometer. Core allowances are unchanged for / — but the broader tax landscape has shifted.
| Allowance | 2025/26 | 2026/27 |
| Annual Allowance | £60,000 | £60,000 |
| Money Purchase Annual Allowance (MPAA) | £10,000 | £10,000 |
| Tapered Annual Allowance – minimum | £10,000 | £10,000 |
| Threshold income (taper trigger) | £200,000 | £200,000 |
| Adjusted income (taper trigger) | £260,000 | £260,000 |
| Lump Sum Allowance (tax-free cash cap) | £268,275 | £268,275 |
| Lump Sum and Death Benefit Allowance | £1,073,100 | £1,073,100 |
NIC and IHT changes make pension planning even more critical for business owners and larger estates in 2026/27
The Annual Allowance ‒ Carry Forward
The £60,000 Annual Allowance covers all contributions by you and your employer combined. Unused allowance from the past three tax years can be carried forward.
How It Works
Used £20,000, per year for three years? You have £120,000, unused. Add this year’s £60,000, — you could contribute up to £180,000, with full tax relief.
Act Now for 2023 / 24
2026/27 is the last chance to use / carry forward — that year’s balance drops off after this tax year.
The Taper – Who It Affects
The Tapered Annual Allowance reduces the £60,000 allowance for those with threshold income above £200,000 and adjusted income above £260,000. For every £ 2 above £260,000, the allowance drops by £1 — minimum £10,000.
NIC threshold changes mean more business owners are restructuring remuneration, which can affect where you sit relative to these limits. Speak to us before year-end —not after.
The MPAA ‒ A Trap for the Unwary
Access your pension flexibly and your Annual Allowance for money purchase contributions drops to just £10,000 Once triggered, it cannot be reversed and carry forward does not apply
Ad Hoc Lump Sums
Taking one-off withdrawals from a pension pot.
Flexi-Access
Drawdown Moving into drawdown — even without taking income.
Small Pot Cash-In
Cashing in a small pot exceeding trivial commutation rules.
Tax-Free Cash ‒ Post-LTA Landscape
From April 2024 , tax-free cash is governed by the Lump Sum Allowance (LSA) of £268, 275 — unchanged for 2026/27.
- Most people can take up to £268,275 tax-free across all pension arrangements.
- Pre-April withdrawals count against your LSA.
- Amounts above the LSA are taxed at your marginal rate.
- Enhanced or fixed protection may entitle you to a higher amount — seek advice before assuming the pre-2024 position applies.
Pensions for Business Owners
Employer contributions are deductible against corporation tax, carry no Income Tax or NIC, and sidestep Employer NIC entirely — increasingly compelling with the secondary threshold now at £5,000.Single-director companies remain ineligible for the £10,500 Employment Allowance.
The Illustration
A single-director company with £80,000 profits contributes £20,000 to pension: saves ~£4,800 in corporation tax (at 24 %), zero Income Tax or NIC, and avoids Employer NIC on an equivalent salary
Action Required
NIC changes from April 2025 and 2026 mean salary/dividend/pension models need refreshing. If we haven’t reviewed yours recently, now is the time.
Pensions on Death ‒ IHT Change on the Horizon
From April (subject to final legislation), unusedpension funds and death benefits are expected to fallwithin Inheritance Tax for the first time — one of the most significant pension planning shifts in a generation.
- Unspent pots could face IHT at 40%, stacked on income tax for beneficiaries — effective rates may exceed 60%.
- Estate strategies built around spending other assets first may need reconsidering.
- If your pension forms a significant part of your estate, get in touch — planning opportunities may exist before April
Five Questions Worth Asking Yourself
1. Annual Allowance
Used your full allowance — and do you have / carry forward to use before it’s lost?
2. Taper Thresholds
Close to £,/£,? Has your remuneration structure changed?
3. MPAA Risk
Accessed pension savings flexibly? The £, MPAA may apply
4. Company Contributions
Making direct employer pension contributions, or bearing full NIC on salary?
5. IHT Planning
Reviewed pension nominations and death benefits ahead of April ?