Category: Pension

A new press release from HMRC is highlighting the fact that almost 7 million UK adults could be heading towards retirement without knowing how much State Pension they may be entitled to. New research has found that around one in eight adults (12.5%) have never checked their State Pension forecast. 

Those aged 45 to 54 are more likely than any other age group to have never checked their forecast, despite this being an important time for retirement planning. However, it is important that people of all ages check their State Pension forecast regularly rather than leaving it until retirement is approaching.

The State Pension forecast shows when someone can claim their State Pension, how much they could receive and whether there are ways to increase their entitlement. It can also be used alongside a National Insurance record to identify gaps in contributions or credits.

Where there are gaps, some people may be able to pay voluntary National Insurance contributions. However, paying voluntary contributions does not always increase the State Pension, so the forecast and National Insurance record should be checked before making a payment.

The forecast can be checked through the free HMRC app or online via GOV.UK. If you have never checked your State Pension forecast or it has been a long time since you did so, it could be worth taking a few minutes to find out what your State Pension position looks like.

Receiving tax relief on pension contributions into a workplace pension is a great way to help prepare for retirement. In addition, contributions from your employer can make the pension savings even greater. 

If you are automatically enrolled into a workplace pension a percentage of your earnings is paid into your pension fund each payday. Your employer must also contribute if you meet the automatic enrolment rules, with minimum contributions currently set at 3% from the employer and 5% from the employee, giving a total minimum contribution of 8% of qualifying earnings. Some employers also choose to contribute more than the legal minimum.

The way you receive tax relief depends on how your workplace pension operates. Under a net pay arrangement, pension contributions are deducted before Income Tax is calculated, meaning you receive tax relief automatically at your highest rate.

Under relief at source, contributions are taken after tax, and your pension provider claims basic-rate tax relief from HMRC. Higher and additional-rate taxpayers may then be able to claim extra tax relief through their self-assessment tax return or by contacting HMRC.

Some employers also offer salary sacrifice, where you agree to exchange part of your salary for an employer pension contribution. This can reduce both Income Tax and National Insurance contributions for you and your employer.

Before opting out of a workplace pension, it is worth considering the value of employer contributions and tax relief, with some care as these benefits can significantly increase your retirement savings over time.

Your State Pension forecast can help you plan for retirement by showing how much State Pension you could be entitled to, when you can claim it and whether there are ways to increase your entitlement. 

The online forecast service https://www.gov.uk/check-state-pension allows you to check how much State Pension you could receive, when you are eligible to claim it and whether you can increase your entitlement. As the State Pension age is regularly reviewed, the results of your forecast may change in the future.

You cannot use the online service if you are already receiving your State Pension or if you have delayed or ‘deferred’ claiming it. To access the forecast service, you need to sign in and may be asked to confirm your identity using photo ID, such as a passport or driving licence.

The quickest way to get a forecast is online, but you can also check by using the HMRC app. If your State Pension age is more than 30 days away, you can also complete the BR19 application form and send it by post, or contact the Future Pension Centre, which will send you a forecast.

If you are already receiving your State Pension or have deferred claiming it, contact the Pension Service if you are in the UK or the International Pension Centre if you live abroad. Reviewing your forecast regularly can help you make informed decisions about your retirement planning.

Pensions remain one of the most tax-efficient ways to save for retirement, due to a range of tax reliefs and allowances that can help boost retirement savings.

One of the key advantages of private pension contributions is the availability of tax relief on pension contributions. Individuals can usually receive tax relief on pension contributions worth up to 100% of their annual earnings subject to an annual allowance. The tax relief effectively reduces the cost of saving into a pension. Basic rate taxpayers benefit from 20% tax relief, while higher rate taxpayers can claim 40% relief and additional rate taxpayers can receive 45% relief on their contributions.

The annual allowance is the maximum amount that can be contributed to pension schemes each tax year before an additional tax charge may arise. The standard annual allowance is currently £60,000 and applies across all of an individual's pension arrangements. In some circumstances it may be possible to contribute more by using the carry forward rules. This allows unused pension allowances from the previous three tax years to be carried forward, provided they made pension contributions during those years.

Pension savers can also benefit from tax-free withdrawals in retirement. Most people can usually take up to 25% of their pension savings as a tax-free lump sum, subject to a maximum lump sum allowance of £268,275. In certain circumstances, including certain death benefits and serious ill-health payments, a higher lump sum and death benefit allowance may apply.

Ensuring that you use all the tax benefits available to you can make a significant difference to the value of retirement savings over the long term.

If you continue working after reaching State Pension age, your National Insurance position changes, but your Income Tax obligations largely remain the same.

Once you reach State Pension age, you stop paying employee National Insurance contributions (Class 1) on your earnings. However, your employer must continue to pay employer (secondary) Class 1 National Insurance contributions.

If you are employed, you should provide your employer with proof of your age (such as a passport or birth certificate) so that National Insurance deductions can be stopped. If you prefer not to provide this, you can request confirmation from HMRC (known as an age exception certificate) and show this instead.

If you are self-employed, Class 2 National Insurance contributions are no longer due, and you stop paying Class 4 contributions from the start of the tax year following the one in which you reach State Pension age. For example, if you reach State Pension age during 2026–27, your Class 4 NIC contributions will continue until 5 April 2027 and then stop.

Although National Insurance may no longer apply, Income Tax is still payable if your total taxable income exceeds your personal allowance.

You must continue to meet your reporting obligations, including filing a self-assessment tax return where required. If you have overpaid tax or National Insurance, you can claim a refund from HMRC.

With the end of the 2025–26 tax year approaching on 5 April 2026, there is still time for taxpayers to increase their pension savings and benefit from valuable tax relief. Pension contributions remain one of the most tax-efficient ways to save for retirement, with relief available at a taxpayer’s highest marginal rate.

Tax relief on private pension contributions is generally available on contributions of up to 100% of relevant earnings, subject to certain limits. The relief effectively reduces the cost of saving into a pension. Basic rate taxpayers benefit from 20% tax relief, while higher rate taxpayers can claim 40% relief and additional rate taxpayers can receive 45% relief on their contributions.

For basic rate taxpayers, the initial 20% relief is usually applied automatically by the pension provider. Higher and additional rate taxpayers can claim the extra relief through their self-assessment or by contacting HMRC if they do not normally file a return.

Most individuals can contribute up to the annual allowance of £60,000 each tax year while still benefiting from tax relief. Contributions above this limit can trigger an annual allowance charge. However, it may be possible to contribute more by using the carry forward rules, which allow unused pension allowances from the previous three tax years to be used, provided they made pension contributions during those years.

When planning pension funding, inflation is often acknowledged but not always fully reflected in contribution decisions. Using an average inflation rate of around 5% over recent years helps to illustrate why this matters so much. Even when inflation appears to be easing in the short term, its long-term effect on retirement income can be significant.

Inflation erodes purchasing power. A pension pot that looks comfortable today may buy far less in real terms by the time retirement arrives. At an average inflation rate of 5%, prices double roughly every fourteen years. This means that someone planning to retire in twenty years’ time will need close to twice the income they might intuitively expect, just to maintain the same standard of living. Ignoring inflation risks building a pension fund that appears adequate on paper but falls short in practice.

Inflation also affects investment returns. Pension growth is often discussed in nominal terms, but what really matters is real growth, that is growth after inflation. A fund growing at 6% per year sounds healthy, but if inflation is averaging 5%, the real increase in value is modest. This has implications for asset allocation, contribution levels and the balance between growth and lower risk investments as retirement approaches.

For those making regular contributions, inflation should influence both the starting level and how contributions increase over time. Flat contributions that are not reviewed regularly lose real value year by year. Linking contribution increases to inflation or at least reviewing them periodically in light of inflation trends, can make a material difference to the eventual outcome.

Finally, inflation uncertainty reinforces the importance of flexibility. Retirement may last twenty or thirty years, during which inflation will vary. Building in a margin of safety, through higher contributions or diversified investments, can help protect against prolonged periods of higher inflation.

Taking inflation seriously is not about pessimism. It is about realism. Factoring an average inflation rate of 5% into pension planning leads to better informed decisions and a greater chance that retirement income will meet expectations when it is most needed.

Automatic enrolment for workplace pensions has helped many employees to start making provision for their retirement with employers and government also contributing to make a larger pension pot.

The law states that employers must automatically enrol workers into a workplace pension if they are aged between 22 and State Pension Age, earns more than minimum earning threshold. The minimum threshold is currently £10,000 and will remain the same in 2026-27. The employee must also work in the UK and not already be a member of a qualifying work pension scheme. Employees can opt-out of joining the pension scheme if they wish.

Under the rules, employers are also required to offer their workers access to a workplace pension when a change in their age or earnings makes them eligible. This must be done within 6 weeks of the day they meet the criteria.

Under the automatic enrolment rules the employer and the government also add money into the pension scheme. There are minimum contributions that must be made by employers and employees.

Both the employer and employee need to contribute. There is a minimum employer contribution of 3% and employee contribution of 4%. This means that contributions in total will be a minimum of 8%: 3% from the employer, 4% from the employee and an additional 1% tax relief. For example, if you pay £40, your employer adds £30, and you receive £10 in tax relief, a total of £80 goes into your pension.

In most automatic enrolment schemes, employees make contributions based on their total earnings between £6,240 (the lower qualifying earnings limit) and £50,270 (the upper qualifying earnings limit) a year before tax. This means that for many employees the 8% contribution rate will not be based on their full salary.

The Additional State Pension is only available to those who reached the state pension age before 6 April 2016 and are receiving the Old State Pension. The Additional State Pension is an extra amount of money paid on top of the basic Old State Pension.

The Old State Pension is designed to provide individuals of state pension age with a basic regular income and is based on National Insurance Contributions (NICs). To get the full basic State Pension, most people need to have had 35 qualifying years of NICs.

Claimants will automatically have received the Additional State Pension if they were eligible for it. Those who had contracted out were not eligible for the Additional State Pension.

If your spouse or civil partner dies, you may be able to inherit some of their Additional State Pension if you reached State Pension age before 6 April 2016. If you do not receive the full basic State Pension, you may be able to increase it by using your spouse or civil partner’s qualifying National Insurance years.

You may also be able to inherit part of their Additional State Pension or Graduated Retirement Benefit. Different rules apply if you reached State Pension age on or after 6 April 2016. If relevant, you should contact the Pension Service to check what you can claim.

The Chancellor has kept the main pension allowances unchanged but has confirmed a new cap on salary sacrifice arrangements that will apply from April 2029.

There had been heated speculation that the Chancellor would change the pension rules to help the government raise taxes, but no changes were announced to the annual allowance (which remains at £60,000) or to the carry-forward rules which can use up previous year’s annual allowances. The lump sum allowance has also remained unchanged at £268,275.

However, the Chancellor announced changes to the salary sacrifice arrangements for pension contributions. Salary sacrifice allows employees to reduce part of their salary or bonus in exchange for pension contributions, which is tax-efficient and helps save for retirement. However, this arrangement has disproportionately benefited higher earners with salary sacrifice costs expected to rise from £2.8 billion in 2016-17 to £8 billion by 2030-31.

From April 2029, the government plans to introduce a cap on salary sacrifice contributions which will limit the amount that can be sacrificed without incurring National Insurance Contributions (NICs) to £2,000 per employee. Salary sacrifice contributions above this amount will be subject to employer and employee NICs. Pension contributions that are not part of a salary sacrifice will remain unchanged.

The Chancellor reaffirmed the government's commitment to maintaining the Triple Lock on the State Pension throughout this parliament. This means that in April 2026, the State Pension will increase by 4.8%. The Triple Lock ensures that the State Pension rises by the highest of three measures: inflation, wage growth, or 2.5%, helping to protect pensioners' income against rising costs of living.

Also, starting from 6 April 2027, the government will close a loophole that allows individuals to use pensions for inheritance tax (IHT) planning. Under the new rules, any unspent pension pots will be brought within the scope of IHT.

Your State Pension forecast shows how much you could receive, when you can claim it, and how to boost it by filling National Insurance gaps.

The Check Your State Pension forecast service provides a way to understand your State Pension entitlement. This is a joint service organised by HMRC and the Department for Work and Pensions (DWP) and is available to most individuals under State Pension age.

The forecast allows users to see:

• The amount of State Pension they could receive.
• The age at which they can start receiving it.
• Options for increasing their State Pension, such as by paying voluntary National Insurance contributions to cover any gaps.

The service also helps identify any shortfalls in National Insurance Contributions (NICs), enabling users to take action now to enhance future pension benefits.

To access the service, go to www.gov.uk/check-state-pension and sign in securely using your Government Gateway credentials. If you don’t have an account, you can easily create one. You may need to verify your identity using a photo ID, such as a passport or driving licence.

For added convenience, you can also check your pension forecast via the HMRC app, providing secure access on the go.

If you are already receiving or have deferred your State Pension, you’ll need to reach out to The Pension Service (UK) or the International Pension Centre (abroad). Regularly checking your State Pension status is important to help maximise your entitlement and to help assess any additional savings or pensions you may need for a comfortable retirement.

Employers can generally claim tax relief on contributions made to a registered pension scheme by deducting those payments as an expense when calculating their business profits. This reduces the amount of taxable profit and therefore lowers the overall tax bill.

For businesses involved in a trade or profession, employer pension contributions can usually be claimed as a business expense on the proviso that the payments are incurred wholly and exclusively for the purpose of running the business.

If the employer is a company with investment business, the employer contributions should be deductible as an expense of management.

When claiming tax relief on employer pension contributions, there are a few important rules to keep in mind. Importantly, only contributions that have actually been paid qualify for relief. Other amounts recorded as liabilities that have not yet been paid are not eligible for relief until they are paid. This means employers can only claim relief in the accounting period during which the payment is actually made.

The pension tax legislation amends the normal rules regarding what is an allowable deduction and the timing of a deduction.

International employers contributing to a UK-registered pension scheme benefit from the same rules. In addition, the same basis of relief is also given to employer contributions that are referred to as relevant migrant member contributions.

You can claim tax relief on pension contributions up to 100% of earnings, but exceeding the annual allowance may trigger charges. Tax relief is paid on pension contributions at the highest rate of income tax paid.

The first 20% of tax relief is usually automatically applied by your employer with no further action required if you are a basic-rate taxpayer. If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs on your self-assessment tax return.

There is an annual allowance for tax relief on pensions of £60,000. There is also a three year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years if you have made pension savings in those years.

If your total pension contributions are excessive and you exceed the annual allowance, you may face a tax charge. Your pension provider should inform you if you exceed the limit within their scheme, but if you have multiple pensions, you will need to request statements from each provider to check your position. You or your pension provider must pay any tax due from exceeding the limit.

You must report the charge in the ‘Pension savings tax charges’ section of your self-assessment tax return or use form SA101 if filing by paper. This is required even if your pension provider paid all or part of the tax due. You can still claim tax relief on contributions. HMRC does not tax anyone for going over their annual allowance in a tax year if they retired and took all their pension pots because of serious ill health or they died.

The Money Purchase Annual Allowance (MPAA) is a pension rule designed to prevent individuals from gaining double tax relief on pension contributions. It targets situations where someone withdraws money from their defined contribution pension pot and then reinvests it, effectively receiving tax relief on the same funds twice.

The normal annual pension contribution limit is currently £60,000. However, once the MPAA is triggered the pension contribution limit is significantly reduced to the MPAA cap of £10,000 per year.

The MPAA is triggered when you start accessing your pension flexibly, such as by:

• Withdrawing your entire pot as a lump sum (in full or in part).
• Moving into flexi-access drawdown and taking income.
• Buying a flexible annuity.
• Exceeding withdrawal limits under a capped drawdown plan.

It does not usually apply if you:

• Only withdraw up to a 25% tax-free lump sum allowance.
• Buy a lifetime annuity.
• Cash in a small pension pot of less than £10,000.

If applicable, the reduced pension allowance can affect future retirement planning and needs to be considered before making any pension withdrawals.

Your pension scheme type affects your tax relief. Workplace pensions offer tax benefits, but the method used, net pay or relief at source, changes how and when you get them. Your employer or pension provider should confirm which arrangement your scheme uses, and this will affect both your payslip and potential tax relief.

Net pay arrangement

In a net pay arrangement, your pension contribution is taken before tax is calculated. This reduces your taxable income, meaning you automatically receive full tax relief at your highest income tax rate. This can be the basic, higher or additional tax rates. The amount shown on your payslip includes both your contribution and the tax relief applied.

However, if you do not pay tax, for example because you earn below the personal allowance, you will not receive any tax relief under this method.

Relief at source

With the relief at source method, your pension contributions are taken after tax, and National Insurance is deducted from your pay. Your pension provider then adds 20% basic rate tax relief directly into your pension pot. This means your payslip will show only your contributions and not the tax relief.

If you are a higher or additional rate taxpayer (or pay the higher or top rate in Scotland), you can claim extra tax relief through your self-assessment return or by contacting HMRC.