Pension contributions before 5 April

Pension contributions to registered pension funds currently qualify for tax relief at your highest tax rate.


The amount you can contribute with tax relief is capped by your annual allowance. The annual allowance for 2016/17 is set at £40,000, which covers the gross contributions made by both you and your employer on your behalf. Provided that you were a member of a registered pension scheme any annual allowance which has not been used during the three previous tax years can be carried forward.

From April 2016, where your total income, including pension contributions made by your employer, tops £150,000, your annual allowance is usually reduced by £1 for every £2 over that threshold, down to a minimum of £10,000.

Your annual allowance is also reduced to £10,000 exactly (not tapered down), if you have started to access your pension savings built up in a money purchase (defined contribution) pension scheme. This is to prevent you from drawing funds from your pension scheme and replacing the money in the same or another pension scheme with additional tax relief.

The latter £10,000 limit will be reduced further to £4,000 per annum from 6 April 2017. Also, this type of restricted annual allowance can’t be carried forward to future tax years.

Qualifying pension contributions must be paid prior to 5 April 2017 in order to obtain tax relief in the 2016/17 tax year so if you are considering making a contribution in the current tax year take action today.

You can of course continue to save for retirement in other ways, such as using an ISA. But don’t forget to use your ISA allowance for each tax year, as any unused ISA allowance can’t be carried forward. The ISA allowance for 2016/17 is £15,240. For 2017/18 it will be £20,000.

A new lifetime ISA will be launched in April 2017 for savers aged under 40. This ISA can be used as a deposit for the saver’s first home or to access on retirement from age 60. The Government will provide a bonus of 25% of the savings contributed by the taxpayer, which are capped at £4,000 per year and contribute towards the overall £20,000 ISA limit.  

 For more information on tax relief on pension contributions please contact your local GMcG tax consultant.