The combination of generous tax reliefs on contributions; tax-efficient growth within the pension fund; flexible access from the age of 55; and tax efficient death benefits can make your pension particularly useful for both retirement and estate planning.

There are many opportunities for pension planning, but as this is a complex area, we suggest you talk to an Independent Financial Advisor (IFA) before taking action. If you do not already have an IFA we would be pleased to introduce you to one of our colleagues from Menzies Wealth Management.

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Lifetime Allowance (LTA)


Pension contributions paid by an individual continue to attract tax relief at their marginal rate.

The LTA has been fixed at £1.073 million until April 2026. The government has provided transitional protections but, unlike previous instances, the government has not set a deadline for applications. This means that, in certain circumstances, some individuals may still be able to apply for protection. This may be relevant for individuals who have already accumulated substantial money purchase pension funds (e.g. Personal Pension) or those who are high earners (or have been high earners) in relation to membership of a Defined Benefit Scheme.

LTA advice is a particularly complex area and individuals should think very carefully before foregoing valuable benefits from an employer (e.g. Employer Pension Contribution or accrual under a Defined Benefit Scheme) simply to avoid a Lifetime Allowance Charge. Of course, each situation should be considered on its own merits, but we would encourage you to seek advice from an Independent Financial Adviser before taking action.

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Pension Carry Forward

The pension annual allowance can be carried forward for three tax years providing you were a member of a registered pension scheme during that period. Any unused annual allowance for the three previous tax years (2019/20, 2020/21 and 2021/22) can be added to your 2022/23 allowance (giving a maximum contribution of £160,000) and will attract tax relief at your marginal rate. This will be of course be subject to the individual’s net relevant earnings in the year and subject to any tapering of their annual allowance based on their income level.

The last opportunity to utilise any available carry forward allowance available from the 2019/20 tax year will be 5 April 2023.

If you run your own company, there may be an opportunity to extract profits tax efficiently by making this contribution through your company

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Pension Tapered Tax Relief

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Individuals with adjusted net income exceeding £240,000 will have their annual pension contribution allowance restricted. Their standard allowance of £40,000 will be reduced by £1 for every £2 of income in excess of £240,000.

Individuals with an adjusted net income in excess of £312,000 will suffer the full reduction of their annual allowance to £4,000. No tax relief will be available for contributions in excess of this figure.

The definition of adjusted net income is complex but notably includes employer pension contributions as well as other sources of income such as rental income.

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Pension Freedom Reforms

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The pension freedom reforms introduced in recent years allow an individual aged over 55 to withdraw their entire pension fund as a lump sum or as regular income. However, individuals considering doing so should be aware that pension funds withdrawn as ‘income’ are taxable at the recipient’s marginal rate.

A lump sum withdrawal can, therefore, result in a significantly higher tax bill than would be the case if the same income was withdrawn over multiple tax years, utilising each year’s
respective allowances and income thresholds. Individuals should also note our earlier comments regarding the IHT efficient nature of pension death benefits as the withdrawal of lump sums will add to the ‘taxable estate’ when accumulated rather than spent. Again, each situation should be considered on its own merits.

Your Brighter Thinking Next Steps

“Pensions remain an efficient planning tool for tax and as an investment tool, but specialist advice is essential. An innocent oversight can cause a raft of unwanted tax, and other issues. Talk to us about an introduction to a Menzies Wealth Management Independent Financial Adviser.”

Jodie Watling – Wealth Management Director

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Menzies Wealth Management Team

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Personal tax planning can be complex. We would always recommend that you seek professional advice when undertaking a review to ensure all changes are processed and managed effectively. Please do speak with your Menzies contact who will be delighted to meet with you to discuss ideas, opportunities and the appropriate action.

To discuss your income tax planning arrangements for the tax year ahead, contact Menzies Private Client Team below:

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