10 Smart Reasons to Top Up Your Pension Before April 2025

With the end of the tax year approaching, now is a good time to review your pension contributions. Making the most of available allowances can significantly enhance your retirement savings while reducing your tax burden. Despite upcoming changes to inheritance tax (IHT) on pension death benefits, pensions remain one of the most effective vehicles for long-term savings and wealth transfer. Here are ten reasons to consider boosting your pension before the April 2025 deadline.

1. Maximise Your Annual Allowance

The current annual pension allowance stands at £60,000 (Providing you have sufficient relevant UK earnings if making a personal contribution). This amount provides an excellent opportunity to reduce taxable income, especially for those who have moved into higher tax brackets due to the ongoing personal allowance and tax band freezes.

2. Use Carry Forward to Contribute More

If you haven’t maximised your pension contributions over the past three tax years, you can carry forward unused allowances. This means individuals who haven’t been funding their pensions regularly could contribute up to £200,000 in the current tax year, provided they have sufficient relevant UK earnings to support this.

3. Optimise Bonus Sacrifice

Many companies issue bonuses at the end of the tax year. Opting to exchange a cash bonus for an employer pension contribution can result in significant savings on income tax and National Insurance, effectively increasing the value of your pension without affecting take-home pay as much.

4. Avoid the Tapered Annual Allowance

For high earners, the annual allowance reduces once adjusted income exceeds £260,000. However, if a personal pension contribution lowers threshold income to £200,000 or below, the full £60,000 allowance can be reinstated. This can be an excellent tax planning strategy for top earners.

5. Restart Contributions with Enhanced or Fixed Protection

Individuals with enhanced or fixed protection had to stop pension contributions to maintain a higher lifetime allowance. However, since the abolition of the LTA, these protections now safeguard a higher lump sum allowance. If no contributions were made last year, there’s a chance to contribute up to £200,000 using carry forward.

6. Tax Relief for Business Owners

With corporation tax now at 25% for profits over £250,000, employer pension contributions offer an efficient way to reduce tax liabilities. Rather than taking profits as dividends (which are subject to dividend tax after corporation tax), business owners can make pension contributions directly from company profits, benefiting from full tax relief.

7. Retain Your Personal Allowance

For individuals earning over £100,000, the personal allowance reduces by £1 for every £2 earned above this threshold. Once income reaches £125,140, the personal allowance is entirely lost, effectively resulting in a 60% marginal income tax rate. Making pension contributions to bring adjusted net income below £100,000 can help reclaim this allowance and significantly reduce income tax liability.

8. Benefit from the Abolition of Lifetime Allowance (LTA) Charges

The lifetime allowance charge was officially abolished, allowing those who previously halted contributions to restart pension funding. Even if your pension pot exceeds the new lump sum allowance, the tax benefits of pension savings remain highly advantageous, especially given tax-free investment growth and relief at your highest income tax rate.

9. Protect Child Benefit Entitlement

Families with one parent earning over £60,000 begin to see reductions in their child benefit entitlement, with complete loss at £80,000. Pension contributions reduce adjusted net income, potentially restoring eligibility for child benefit and enhancing tax efficiency.

10. Smart Pension Planning for Couples and Families

Couples should maximise tax relief by ensuring both partners contribute effectively. Parents and grandparents can also contribute to pensions for children and grandchildren, benefiting from immediate tax relief while facilitating intergenerational wealth transfer.

Final Thoughts

Pensions remain one of the most tax-efficient ways to save for retirement. The combination of tax relief, investment growth, and the ability to pass on wealth makes them an essential part of financial planning. Since many allowances expire at the end of the tax year, reviewing your pension strategy now ensures you maximise tax benefits before April 2025.

Please note that these are the rules under current legislation, which can change.  This is for information only and does not constitute a personal recommendation.  Please speak to one of the advisers at Beechwood to get the best advice for your circumstances.