Maximising pension contributions ahead of key rule changes

Date

Feb 19, 2026

Maximising pension contributions ahead of key rule changes

With pension rules set to tighten from April 2027, now is a critical time for individuals and business owners to review and optimise their pension funding strategy. Pensions remain one of the most tax-efficient long-term planning tools available, and acting early can help secure valuable reliefs before future restrictions take effect.

This insight outlines the current allowances, the proposed changes, and practical steps to consider.

1. Make full use of the current annual allowance

The standard annual allowance for pension contributions is currently £60,000 per tax year, and some individuals may be able to contribute more through the use of the carry-forward rules.

Depending on your circumstances you may be able to contribute up to £220,000 in the current tax year (2025/26) if:

You have sufficient earnings to support the contribution, and

You have unused annual allowance from the previous three tax years.

This may present a valuable planning opportunity for those who have delayed contributions or experienced fluctuating income.

2. Pensions remain highly tax-efficient but changes are coming

Pension funds continue to offer generous tax advantages:

Tax-relievable contributions reduce taxable income.

Tax-free growth within the pension.

Potential for 25% tax-free lump sum on retirement.

However, from April 2027, the government has proposed that unspent pension funds may fall within the scope of Inheritance Tax (IHT). While full details are still emerging, this marks a significant shift from the current position, where most pension death benefits fall outside the estate for IHT purposes.

Individuals with substantial pension savings – or those planning to use pensions as a succession tool – should revisit their long-term strategy now.

In addition, it is advisable to review existing pensions to ensure they are set up to pay out death benefits flexibly, as this is a crucial consideration when talking about pensions providing a legacy.

A pension is a long‑term investment. The value of investments can go down as well as up and you may get back less than you invested.

3. Business owners: Consider company-funded contributions

For business owners, pension planning can form a key part of an efficient remuneration strategy.

Employer (company-funded) pension contributions offer several advantages:

They are generally corporation tax-deductible.

They do not attract employer NICs.

They can help extract profits in a tax efficient manner.

This can be particularly valuable for owner-managed businesses seeking to balance salary, dividends, and pension funding while staying within contribution limits.

Care must be taken to ensure contributions meet the "wholly and exclusively" test for business purposes, and that they align with overall remuneration levels.

4. Planning opportunities to consider now

To make the most of the current rules:

Review unused annual allowance from the last three tax years and consider catchup contributions.

Evaluate whether to increase contributions before any IHT changes take effect in April 2027.

Assess whether employer contributions could be a more efficient way to fund pensions, particularly for business owners.

Coordinate pension strategy with overall estate planning, especially where pensions form a large part of family wealth.