Last updated: 14 October 2026
Should you make a lump sum pension contribution before you retire?
Often, yes. A large contribution in the years before retirement can get tax relief at up to 45%, and when you take benefits, 25% of the fund can usually be taken tax-free, up to the £268,275 lump sum allowance. You can use carry forward to pay in more than the £60,000 annual allowance. But once you’ve flexibly accessed a pension, the money purchase annual allowance cuts your limit to £10,000, so make the big contribution before you start drawing income.
Limits to plan around
| Limit | 2026/27 |
| Annual allowance | £60,000, or 100% of earnings if lower |
| Carry forward | Unused allowance from the 3 previous tax years |
| Money purchase annual allowance (after flexible access) | £10,000 |
| Tapered annual allowance | Down to £10,000 for adjusted income over £260,000 |
| Lump sum allowance (tax-free cash) | £268,275 |
| Non-earners | £3,600 gross a year |
Example
Paul is 62, earns £90,000 and plans to retire next year. He hasn’t used £40,000 of his allowance across the last 3 years. In 2026/27, he pays in £80,000 gross (£64,000 net, with £16,000 added by the provider), using carry forward. He’s limited by his £90,000 of earnings and his £100,000 total allowance, so the contribution qualifies. He claims extra relief of 20% on the part of his income taxed at 40%, which is £39,730, so £7,946. When he retires, a quarter of the extra £80,000, £20,000, can come out tax-free.
Using a company
If you own a company, an employer contribution doesn’t need to be covered by your salary, only by the annual allowance and carry forward. It’s deductible from company profits if it’s reasonable, and avoids income tax, NIC and dividend tax. This is often done before selling or closing the business.
The recycling rule
If you take tax-free cash and then pay it back into a pension to get more relief, HMRC’s recycling rules can tax the lump sum as an unauthorised payment. Plan contributions before taking your tax-free cash.
Timing matters
- Pay in while you still have relevant earnings, before you stop work
- Contribute before you take any flexible income, to avoid the £10,000 MPAA
- Check the tax year in which you pay, to match your highest-rate year
- From 6 April 2027, most unused pension funds are included in your estate for Inheritance Tax
Check your Personal Allowance
If your income is over £100,000, a contribution can also bring back some or all of your Personal Allowance, which is reduced by £1 for every £2 over that level. In that band, the effective relief can reach 60%, so the timing of a large contribution can be especially valuable in your final working years.
Speak to your provider first
Some schemes limit one-off payments or need them by a set date before 5 April. Check how and when the provider claims the 20% basic-rate relief, and keep the contribution statement for your tax return.
Frequently asked questions
Can I contribute after I’ve retired?
Only up to £3,600 gross if you have no earnings.
Does taking only tax-free cash trigger the MPAA?
No, taking just the lump sum doesn’t.
Can I use carry forward if I wasn’t a scheme member?
No, you must have been a member in those years.
Is there an age limit?
Tax relief on contributions stops at 75.
Related: pension contributions to cut higher-rate tax, 25% tax-free cash after withdrawals and whether it’s too late for higher-rate relief.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with pension contributions before retirement. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
