UK Pension Guide — 2025/26
Updated for the 2025/26 tax year
Pensions are the most tax-efficient way to save for retirement in the UK. You get tax relief on contributions, tax-free growth inside the fund, and 25% of your pot tax-free when you withdraw. Understanding the different types and limits can save you thousands.
Pension Types Compared
| Feature | Workplace Pension | SIPP | State Pension |
|---|---|---|---|
| Contributions | You + employer | You only | Via National Insurance |
| Employer match | Min 3% (auto-enrolment) | No | N/A |
| Investment choice | Limited (provider’s funds) | Wide (stocks, funds, ETFs) | N/A |
| Annual amount (2025/26) | Up to £60,000 | Up to £60,000 | £230.25/week (full) |
| Access age | 55 (rising to 57 in 2028) | 55 (rising to 57 in 2028) | 66 (rising to 67 by 2028) |
Tax Relief — How It Works
When you contribute to a pension, the government adds tax relief at your marginal rate:
- Basic rate (20%): Pay £80, pension receives £100 (provider claims £20 from HMRC).
- Higher rate (40%): Pay £80, pension receives £100, then claim back another £20 via Self Assessment = effective cost £60.
- Additional rate (45%): Effective cost of £55 per £100 contributed.
Annual Allowance & Lifetime Allowance
- Annual allowance: £60,000 for 2025/26 (or 100% of earnings if lower).
- Carry forward: Unused allowance from the previous 3 years can be carried forward.
- Tapered annual allowance: If adjusted income exceeds £260,000, the allowance reduces by £1 for every £2 over, down to a minimum of £10,000.
- Lifetime allowance (LTA): Abolished from April 2024. No cap on total pension savings.
Worked Example: £50,000 Salary, 5% Contribution
Auto-enrolment workplace pension
- Gross salary: £50,000
- Your contribution (5%): £2,500
- Employer contribution (3%): £1,500
- Total going into pension: £4,000/year
- Tax relief at basic rate: £2,500 costs you only £2,000 net
- Over 25 years at 7% growth: £4,000/year grows to approximately £253,000
Increasing your contribution from 5% to 10% (£5,000) would grow to approximately £380,000 — and the extra £2,500 only costs you £2,000 after tax relief.
State Pension
- Full new State Pension: £230.25/week (£11,973/year) for 2025/26.
- You need 35 qualifying years of NI for the full amount.
- Minimum 10 years to get anything.
- Check your NI record on the HMRC app or gov.uk.
- You can buy missing years (voluntary Class 3 NI: £17.45/week).
Practical Tips
- Always contribute enough to get your full employer match — it is free money.
- Higher-rate taxpayers: claim your extra 20% relief via Self Assessment.
- Self-employed? Set up a SIPP — there is no employer to contribute for you.
- Salary sacrifice can save both you and your employer NI — ask your HR team.