UK Pension Optimisation Guide 2026/27
UK pension tax planning 2026/27: the £60,000 annual allowance, salary sacrifice, the £100k taper, carry forward and HICBC, with worked figures.
How UK pension tax relief works in 2026/27 and where it is worth most: the annual allowance, salary sacrifice, the Personal Allowance taper above £100,000, carry forward, the High Income Child Benefit Charge and access rules. Figures are for England, Wales and Northern Ireland Income Tax; Scottish rates differ. General information, not advice.
Summary
- £60,000 annual allowance, tapering for adjusted income above £260,000 (with threshold income above £200,000)
- Tax relief at your marginal rate on your own contributions up to 100% of earnings
- Salary sacrifice also saves employee NI; capped at £2,000 a year for NI from 6 April 2029
- £100,000 to £125,140: 60% Income Tax rate from the allowance taper
- Carry forward of unused allowance from the 3 previous years
- Tax-free lump sum normally 25%, capped at £268,275 in total
Step 1: take the full employer contribution
If your employer matches what you pay in, contributing less than the match leaves pay on the table. As an illustration, an extra £2,500 a year from an employer, invested for 25 years at an assumed 5% a year real return, would grow to about £119,318. Returns are not guaranteed.
Step 2: use salary sacrifice if it is offered
Salary sacrifice reduces your pay before Income Tax and National Insurance, so you save employee NI as well as tax. For a higher-rate taxpayer putting £5,000 into a pension:
| Method | Into pension | Net cost to you | Effective relief |
|---|---|---|---|
| Personal contribution with tax relief | £5,000 | £3,000 | 40% |
| Salary sacrifice (NI saved too) | £5,000 | £2,900 | 42% |
| Salary sacrifice with employer NI saving added | £5,750 | £2,900 | 49.6% |
The last row applies only where your employer adds its 15% employer NI saving to your pension; not all do, so ask. From 6 April 2029 sacrificed pension contributions above £2,000 a year will attract NI (GOV.UK).
Step 3: escape the Personal Allowance taper
Between £100,000 and £125,140 of adjusted net income the Personal Allowance is withdrawn, so pension contributions in that band get unusually high relief. Worked example from our salary calculator (England, salary sacrifice):
| Action | Adjusted net income | Take-home | Pension |
|---|---|---|---|
| No sacrifice | £125,140 | £78,111 | £0 |
| Sacrifice £25,140 | £100,000 | £68,557 | £25,140 |
Take-home falls by £9,553 for £25,140 of pension: effective relief of 62%, because the full £12,570 Personal Allowance comes back.
Step 4: carry forward for larger contributions
Unused annual allowance from the previous 3 tax years can be added to this year's, if you were a member of a registered pension scheme in each of those years (FA 2004 s.228A). The allowance has been £60,000 since 2023/24 (s.228):
- 2026/27: £60,000
- 2025/26, 2024/25 and 2023/24: up to £60,000 each, less anything already used
- Maximum in one year: £240,000, with personal contributions still limited to 100% of earnings for tax relief
Step 5: top up beyond the workplace scheme
Once you take the full employer contribution, extra saving can go into the workplace scheme or a SIPP. Compare total charges and investment choice, and check old pensions for guarantees before consolidating them.
Tapered annual allowance
Where threshold income exceeds £200,000 and adjusted income exceeds £260,000, the allowance falls £1 for every £2 above £260,000 (GOV.UK):
| Adjusted income | Tapered allowance |
|---|---|
| Up to £260,000 | £60,000 |
| £280,000 | £50,000 |
| £320,000 | £30,000 |
| From £360,000 | £10,000 (minimum) |
Threshold income adds back pension salary sacrifice arranged after 8 July 2015. See our annual allowance taper report.
HICBC and pension contributions
Between £60,000 and £80,000 of adjusted net income the High Income Child Benefit Charge adds to the marginal rate. With two children (£2,337 of Child Benefit a year), salary sacrifice for a higher-rate employee:
| Adjusted net income | HICBC | Approx. marginal rate (IT + NI + HICBC) | Net cost of £1 of pension |
|---|---|---|---|
| £65,000 | £584 | 53.7% | £0.46 |
| £75,000 | £1,752 | 53.7% | £0.46 |
| £80,000 and above | £2,337 | 42% | £0.58 |
Retirement access
- Minimum pension age 55, rising to 57 from 6 April 2028 (HMRC PTM062205)
- State Pension age is separate: rising from 66 to 67
- Tax-free lump sum normally up to 25%, capped at £268,275 across all pensions (GOV.UK)
- Ways to take the rest: flexi-access drawdown, UFPLS, an annuity, or a mix. See the drawdown strategies guide.
Illustration: 30 years of contributions on £75,000
16% of a £75,000 salary (£12,000 a year, employee and employer combined) paid in for 30 years at an assumed 5% a year real return, ignoring charges and pay rises. Returns are not guaranteed.
| Year | Annual contribution | Pot (today's money) |
|---|---|---|
| Year 5 | £12,000 | £66,308 |
| Year 10 | £12,000 | £150,935 |
| Year 20 | £12,000 | £396,791 |
| Year 30 | £12,000 | £797,266 |
After 30 years, up to £199,317 could normally be taken tax-free, with the rest taxed as income when drawn. The full new State Pension is £12,548 a year in 2026/27, from State Pension age.
Related pages
Frequently asked questions
How much can I pay into my pension in 2026/27?
The annual allowance is £60,000 of total pension savings, counting your own, your employer's and any salary sacrifice contributions. Tax relief on your own contributions is limited to 100% of your earnings for the year. High earners can have a tapered allowance, falling to £10,000, and anyone who has flexibly accessed a money purchase pension has a money purchase annual allowance of £10,000. Unused allowance from the previous 3 tax years can be carried forward.
What is the effective tax relief on pension contributions?
It depends on your marginal rate. Each £1 of pension costs £0.80 for a basic-rate taxpayer, £0.60 at the higher rate and £0.55 at the additional rate, so £1 of take-home buys £1.25, £1.67 or £1.82 of pension. Between £100,000 and £125,140 the Personal Allowance taper makes the Income Tax rate 60%, so £1 of pension costs £0.40. In a relief-at-source scheme the provider claims the first 20%, and relief above that is claimed from HMRC, on the Self Assessment return if you file one, and only up to the amount of income taxed at the higher rate.
Should I use salary sacrifice for pension contributions?
If your employer offers it, it usually saves employee National Insurance too: 8% below the upper earnings limit and 2% above it. That makes £1 of pension cost about £0.72 for a basic-rate taxpayer, £0.58 at the higher rate and £0.38 in the allowance taper. The employer also saves 15% employer NI and some pass this on. From 6 April 2029 the NI advantage is limited to the first £2,000 a year of sacrificed pension contributions (GOV.UK).
How do I avoid the £100,000 Personal Allowance taper?
Your Personal Allowance falls by £1 for every £2 of adjusted net income above £100,000, so it is gone at £125,140. Pension contributions reduce adjusted net income. On our salary calculator, a £125,140 earner who sacrifices £25,140 into a pension brings adjusted net income to £100,000, restores the full allowance and loses £9,553 of take-home pay for £25,140 in the pension, an effective relief of 62%.
What is carry forward?
Carry forward lets you use unused annual allowance from the 3 previous tax years, provided you were a member of a registered pension scheme in each year you carry from (FA 2004 s.228A). The current year's allowance is used first. The allowance was £60,000 in each year from 2023/24, so the most that could be covered without a charge this year is £240,000, if nothing was paid in the three earlier years. Your own contributions still only get tax relief up to 100% of your earnings, and unused money purchase annual allowance cannot be carried forward.
How does the tapered annual allowance work?
If your threshold income is over £200,000 and your adjusted income is over £260,000, the allowance falls by £1 for every £2 above £260,000, to a minimum of £10,000 at £360,000. Threshold income adds back salary sacrifice for pension set up after 8 July 2015, so sacrifice does not get you under the threshold. Adjusted income includes employer pension contributions.
Should I use a SIPP or my workplace pension?
Take any employer contribution first: if your employer matches what you pay, contributing less than the match gives up pay. A SIPP can sit alongside a workplace scheme for extra contributions or to bring old pots together, but compare the total charges and investment choice against your workplace scheme, and check for guarantees before moving any old pension. See our pension consolidation guide.
What is the 25% tax-free pension lump sum?
From the minimum pension age (55, rising to 57 from 6 April 2028) you can normally take up to 25% of a defined contribution pot tax-free, with the total across all your pensions capped by the Lump Sum Allowance of £268,275 unless you hold a protection. The rest is taxed as income when you take it.
How do pension contributions interact with the High Income Child Benefit Charge?
Pension contributions reduce adjusted net income, which is what the High Income Child Benefit Charge is based on: 1% of Child Benefit for every £200 above £60,000, all of it at £80,000. With two children Child Benefit is £2,337 a year. At £65,000 the charge is £584; a £5,000 salary sacrifice removes it, so the sacrifice costs about £2,316 of take-home pay. See our HICBC mitigation guide.
When can I access my pension?
The normal minimum pension age is 55 and rises to 57 from 6 April 2028 (HMRC PTM062205), with exceptions for protected pension ages, ill health and uniformed services schemes. The State Pension is separate and paid from State Pension age, which is rising from 66 to 67.