A freeview 'At a glance' briefing note designed to be used to chat through the issues with new clients.

Do I need a pension scheme?

A pension is a tax-advantaged method of saving for retirement. This means that:

  • You receive tax relief when you make contributions into a tax approved scheme.
  • There are no taxable benefits or National Insurance Contributions (NICs) due when an employer makes contributions on your behalf.
  • There is an upper limit on the amount that you can contribute tax-free into an approved scheme each year and over the life of the scheme.
  • Pension funds are tax-exempt and so your income grows within your fund tax-free.

Upon retirement, under new rules, a pension may either be taken as a taxable lump sum, of which one quarter is tax-free, or you may draw it down gradually.


Maximum annual contributions that can be tax-relieved in recent years are:

  • From 2021-22 £40,000, tapered to £4,000 for incomes over £300,000 (frozen from 2020-21 until 2025-26).
  • From 2020-21 £40,000, tapered to £4,000 for incomes over £300,000.
  • From 2016-17 £40,000, tapered to £10,000 for incomes over £210,000.
  • From 2013-14 £40,000.
  • From 2011-12 £50,000.

Unused allowances may often be carried forward from the previous three years, so greater contributions may be possible from the outset.

Lifetime allowances in recent years are:

  • From 2021-22 £1.0731 million (frozen from 2020-21 until 2025-26)
  • From 2020-21 £1.0731 million.
  • From 2019-20 £1.055 million.
  • From 2018-19 £1.03 million.
  • From 2016-17 £1 million.
  • From 2014-15 £1.25 million.
  • From 2012-13 £1.5 million.

Pension schemes can be expensive to administer, but personal pension schemes may benefit from low charges. Self-Invested Pension Plans (SIPPs) are an alternative option: you select your own investments.

Employer schemes

Most employers are required to offer workplace pensions under Auto-enrolment

Companies may set up their own schemes. These can be approved schemes which means that they qualify with HMRC's requirements and are tax-advantaged. Unapproved schemes can also be an interesting alternative in remuneration planning.

Useful guides on this topic

Auto-enrolment: Workplace pensions
This guide looks at the key features of auto-enrolment, who is affected, what employers need to do, and the relevant timescales.

DIY Small Self-Administered Scheme 
An SSAS is similar to a Self-Invested Personal Pension (SIPP) scheme but does not require third-party providers and can be run solely by member trustees. We examine the details.

Pensions: Tax rules and planning
What tax rules apply to pensions? What tax relief is available? What tax charges can arise? What planning opportunities are there?

Pensions: Tax planning guides 
Index to our subscriber and freeview pension guides.

Employer-Financed Retirement Benefits Scheme (EFRBS)
An Employer-Financed Retirement Benefits Scheme (EFRBS or EFURB) is an unapproved pension scheme which means that it does not share quite the same tax advantages of a conventional occupational pension scheme

For more tax planning guides for directors see Tax planning for directors which has a summary of the latest tax guides & checklists which cover this topic area.

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