16/08/2026
One of the few times you’ll get money back from the taxman…
I recently went through some recommendations with a retiring client who was amazed that he could make a pension contribution, have thousands of pounds added, and potentially reclaim thousands of pounds more. What I’m referring to is pension tax relief.
There aren’t many scenarios where you can get money back from HMRC, but tax relief is one of the biggest benefits of saving into a pension. I’ve also found that the opportunity is widely misunderstood, or missed completely.
In simple terms, every £80 you contribute personally to a pension will normally become £100 invested, thanks to the additional £20 of basic-rate tax relief (subject to the relevant rules and limits).
If you’re a higher or additional-rate taxpayer, there can be further tax relief available. Using the same £80 example, a higher-rate taxpayer could receive the £20 basic-rate relief into their pension and potentially reclaim a further £20 through their tax return.
Effectively, that can mean an £80 pension contribution has an effective cost of £60, with £100 invested.
The benefits can become even more significant if you earn over £100,000, where your Personal Allowance starts to reduce, or if you have nursery-age children, and there can be further opportunities through arrangements such as salary sacrifice, too.
A common misconception is that pension contributions have to be made monthly. They don’t. You can make occasional or one-off contributions and, subject to the relevant rules and allowances, still benefit from pension tax relief.
To give an example from a client I recently advised:
〰️ The client has earnings of £150,000 and is approaching retirement in a couple of years.
〰️ They made a personal pension contribution of £75,000, utilising “carry forward” (which I’ll post about separately).
〰️ The £75,000 became £93,750 on day one, due to basic-rate tax relief (an uplift of £18,750).
〰️ They were then able to reclaim a further £25,021.50 through their tax return, reflecting the additional tax relief available and the reinstatement of their Personal Allowance.
〰️ Overall, this resulted in £43,771.50 of tax relief, meaning £93,750 was invested into the pension for an effective net cost of around £49,978.50. We plan to repeat this over the next couple of years, too.
It’s a good example of how powerful pension tax relief can be when used as part of wider financial planning. For those with many years, or even decades, ahead before retirement, that additional money has the potential to be invested alongside your own contribution and grow and compound over many years.
For someone closer to retirement, it can provide an opportunity to make the most of your earnings (often close to peak earning potential) before your taxable income potentially reduces in retirement.
Very importantly, pensions come with rules, including minimum pension access ages, contribution limits and tax considerations, and they aren’t suitable for everyone.
However, it’s clear to see why they can be such an effective way of saving for retirement. Once understood, I’ve often found clients wonder why they didn’t make use of pensions sooner.
The information in this post is for general information purposes only and does not constitute personal financial advice or a recommendation. Tax treatment depends on individual circumstances and may change in the future. Pension and investment values can fall as well as rise, and you may get back less than you invest. The rules around pension contributions and tax relief, including carry forward, are subject to eligibility and limits. If you’re unsure whether a pension contribution is suitable for you, you should seek appropriate financial advice.
