Pensions

Will you get a full state pension?

If you are looking forward to retirement, it’s a good idea to check out how much state pension you will get. You can do this by logging on to your personal tax account on gov.uk.

To receive the full amount of the state pension, your NICs record needs to contain 35 completed years. You need at least ten complete NICs years to receive any amount of the UK state pension.

Tax planning points
• You can plug gaps in your NICs record by paying voluntary Class 3 NICs. This payment generally needs to be made within six years of the gap year.
• For 2025/26, where profits are above £6,845 (rising to £7,105 in 2026/27), no Class 2 NICs are payable by self-employed traders, but the trader still gets a NICs credit. Self-employed traders whose profits are below this figure can choose to pay Class 2 voluntarily instead of Class 3; paying Class 2 NICs will be cheaper.
• You may also qualify for NICs credits for some years if you were claiming state benefits, Child Benefit or were a foster carer. The NICs credits were not always applied automatically, so it’s worth checking your own NICs record in your personal tax account.

Personal pensions
Contributions within the annual allowance (AA) to pension funds attract relief at your marginal rate of tax. The combination of tax relief on contributions, tax-free growth within the fund and the ability to take a tax-free lump sum on retirement makes a pension plan an attractive savings vehicle.

However, for those with an annual adjusted income in excess of £260,000, the AA of £60,000 is usually tapered by £1 for every £2 of income in excess of £260,000, reducing to a minimum of £10,000 for those with income over £360,000. No tax relief is available for contributions exceeding the available AA.

The AA can be carried forward for three tax years to the extent it is unused. Any unused AA for the three previous years can be added to your allowance for 2025/26 and will attract full relief, subject to the level of your pensionable income (‘net relevant earnings’).

Tax planning points
• If you are approaching retirement and are considering drawing benefits, take advice from a properly authorised advisor to ensure that you understand the tax and other implications of accessing your pension fund.
• Those aged 55 (rising to 57 on 6 April 2028) or over can access their pension fund flexibly, with no restrictions on the amount they can withdraw, although amounts drawn above the permitted tax-free lump sum will be taxed as income as they are drawn.
• Consider making additional contributions to your pension scheme before the end of the tax year to obtain relief at 40% or 45%, taking care not to breach your available AA.
• Contributions are particularly tax-efficient where your income is between £100,000 and £125,140. Tax relief is available at 60% on income falling within this bracket; the relief is different in Scotland and where the income being relieved is dividend income.
• Review the availability of any unused allowance for the 2022/23 tax year, as this will expire on 5 April 2026. Note that, in 2022/23, the AA was £40,000 (not £60,000) and that tapering began at adjusted net income of £240,000.
• Consider making contributions of up to £2,880 to a pension scheme for a spouse or child if they have no earnings of their own, to obtain basic rate tax relief on the contributions. For example, if you contribute £2,880, HMRC will pay in £720, giving a gross contribution of £3,600.

The pensions tax-free lump sum allowance
The lifetime allowance (LTA), which previously put a cap on the amount of tax-advantaged pension rights that you could build up without incurring punitive tax charges, has been
abolished.

The tax-free lump sum allowance remains £268,275 (25% x £1,073,100, the old LTA) unless the member holds a higher level of protection from when the LTA had previously been cut.

Tax planning points
• For those with large pension pots, the abolition of the LTA charge may change:
• the timing of your retirement; or
• the level of contributions you might want to make before retiring.