A practical guide to end-of-tax-year pension planning and allowances
As the end of the tax year approaches, many people begin reviewing their pension contributions to see whether they can take further action before the 5 April deadline. Whether you are employed, self-employed, or a business owner, making pension contributions before the end of the tax year can be one of the most effective ways to strengthen long-term retirement planning while reducing your current tax bill.
However, end-of-tax-year pension planning is not simply about paying as much as possible into a pension. Instead, it involves understanding how pension allowances work, using pension tax relief efficiently, and ensuring any contributions made before the tax year ends align with your wider financial objectives.
Taking the time to review your position early allows you to make informed decisions, rather than rushed contributions made at the last minute.
Why pension contributions before the end of the tax year matter
Pension allowances operate on a tax-year basis. This means that allowances reset on 6 April, and any unused allowance from the current tax year is normally lost if it is not used before the deadline.
As a result, the period leading up to the end of the tax year is a critical window for pension planning. Reviewing pension contributions before 5 April allows you to identify whether there is scope to make additional contributions and benefit from tax relief that would otherwise be missed.
In addition, pensions remain one of the most tax-efficient ways to save for retirement.
In most cases:
- Pension contributions benefit from tax relief
- Investment growth within pensions is largely free from income tax and capital gains tax
- Pension funds typically fall outside your estate for inheritance tax purposes
Therefore, making pension contributions before the end of the tax year can support both immediate tax efficiency and long-term financial security.
How the annual pension allowance works before the tax year ends
The annual pension allowance is the maximum amount that can be paid into your pensions in a tax year while still benefiting from tax relief.
This allowance applies across all pension arrangements and includes:
- Personal pension contributions
- Employer pension contributions
- Company pension contributions made on your behalf
For most individuals, the standard annual allowance applies. However, for higher earners, the tapered annual allowance may reduce the amount that can be contributed tax-efficiently. In addition, individuals who have flexibly accessed pension benefits may be subject to further restrictions.
Because all pension contributions count towards the same annual allowance, it is essential to review total pension input across all schemes before making any end-of-tax-year pension contributions. This ensures contributions remain within allowable limits and avoids unexpected tax charges.
Using carry forward pension allowance before 5 April
If you have not used your full pension allowance in previous tax years, you may be able to make larger pension contributions by using the carry forward pension allowance rules.
Carry forward allows unused pension allowances from the previous three tax years to be brought into the current tax year, provided you were a member of a pension scheme during those years. Importantly, the current year’s allowance must be used first before any carry forward can be applied.
For example, if your annual allowance is £60,000 and you contributed £30,000 in a previous tax year, the unused £30,000 may be carried forward. When combined with the current year’s allowance, this could significantly increase the amount you are able to contribute before the end of the tax year.
To use carry forward effectively:
- You must have been a member of a pension scheme in the relevant tax years
- Accurate records of past contributions are required
- Total contributions must still be supported by relevant earnings
As a result, carry forward pension planning is particularly valuable for individuals receiving bonuses, business owners with fluctuating profits, or those increasing pension funding later in their career.
To use carry forward effectively, the following rules apply:
- You must have been a member of a pension scheme during the relevant tax years
- The current year’s allowance must be used first
- Accurate contribution records are required to confirm eligibility
As a result, carry-forward pension planning is particularly relevant for individuals receiving bonuses, experiencing rising income, or reviewing pension funding later in their careers.
Personal pension contributions and tax relief at the tax year end
Personal pension contributions receive tax relief at your marginal rate, subject to your level of earnings. This means that contributing to a pension before the end of the tax year can reduce your income tax liability while building retirement savings.
Basic-rate tax relief is usually applied automatically by pension providers. However, higher-rate and additional-rate tax relief on pension contributions must normally be claimed, either through self-assessment or by adjusting your tax code. This is a common area where relief is overlooked.
Before the tax year ends, it is therefore sensible to review:
- How much you have personally contributed this tax year
- Whether your contributions match your taxable income
- Whether additional contributions could improve overall tax efficiency
This review is especially important if your income varies year to year, as changes in earnings can affect both the amount of tax relief available and the effectiveness of pension contributions.
Employer and company pension contributions before the tax year end
Employer pension contributions can be one of the most tax-efficient ways to fund retirement. For many individuals, particularly directors and business owners, they offer advantages that personal contributions alone cannot achieve.
In most cases, employer pension contributions:
- Are treated as a business expense
- Do not attract income tax or National Insurance for the individual
- Can be an efficient way to extract profits from a company
For directors of limited companies, company pension contributions often form part of wider corporate tax planning, helping to align business profits with long-term personal financial goals.
Additionally, salary exchange arrangements may further improve efficiency by reducing National Insurance contributions for both employer and employee. However, these arrangements must be structured carefully and reviewed regularly to ensure they remain suitable.
Pension planning considerations for high earners
End-of-tax-year pension planning is particularly important for high earners. Where income exceeds certain thresholds, the tapered annual allowance may significantly reduce the amount that can be contributed to a pension without triggering an annual allowance charge.
This can become complex when income includes bonuses, dividends, or business profits, as total earnings may fluctuate from year to year. Without careful planning, pension contributions made before the tax year end could inadvertently exceed available allowances.
As a result, high earners often benefit from tailored pension planning that balances pension funding with other tax-efficient investment strategies, ensuring contributions remain effective without creating unintended tax liabilities.
Balancing pension contributions with your wider financial plan
While maximising pension contributions before the end of the tax year can be attractive, pensions should always be considered within the context of your broader financial plan.
In practice, this means taking into account:
- Your intended retirement age and income needs
- Investment strategy and attitude to risk
- Liquidity requirements before retirement
- Estate planning and inheritance objectives
In some cases, spreading pension contributions across multiple tax years or combining pension funding with other tax-efficient investments can provide greater flexibility and long-term balance.
Practical steps to take before 5 April
As the tax year end approaches, taking action early allows time for structured planning rather than last-minute decisions.
Before 5 April, it is worth confirming:
- Total pension contributions made during the current tax year
- Any unused pension allowance available for carry forward
- Your earnings position and applicable tax relief
- Whether employer or company contributions could be increased
Addressing these points in advance helps ensure pension contributions are made efficiently and with confidence.
How DG Financial can support end-of-tax-year pension planning
At DG Financial, pension planning forms part of a wider, integrated financial strategy. Reviewing pension contributions before the end of the tax year helps ensure allowances are used effectively, tax relief is maximised, and decisions remain aligned with long-term goals.
Professional advice can provide clarity around complex pension rules and support confident decision-making at a critical point in the tax year.
THIS DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
