As retirement approaches, there are ways to potentially increase your retirement income. You can find out more about these options below.

You'll receive tax relief on your contributions at your highest marginal rate of tax. Once you start taking your pension benefits you can usually take up to 25% as a tax-free lump sum. The remaining funds will be taxed at your highest marginal rate when you take them — this may be at a lower tax rate than when you paid contributions in.

This information is based on our understanding of current taxation law and HM Revenue and Customs (HMRC) practice, which may change. The value of any tax relief will depend on your individual circumstances. 

How much can I pay?

You will usually receive tax relief on any personal contributions paid before age 75. This includes contributions paid on your behalf (for example, by a spouse/parent) but does not include employer contributions. Tax relief is available on contributions up to 100% of your relevant UK earnings. If you have low or no earnings, you can contribute, and receive tax relief on, £3,600 gross in each tax year.

An annual allowance also applies to the total amount of pension contributions (including any employer contributions) that you can save in your pension in a tax year before you have to pay a tax charge. The annual allowance for the current tax year is £60,000 unless you're a higher earner or are subject to the money purchase annual allowance (MPAA). The MPAA applies to individuals who have flexibly accessed their pension benefits. Find out more about the annual allowance or if the MPAA applies to you. 

You're a higher earner if you earn over £260,000 in which case you may be affected by the tapered annual allowance. This currently works by operating a £1 reduction in the annual allowance for every £2 of adjusted income above £260,000, subject to a minimum annual allowance of £10,000.  So, those with an adjusted income of £360,000 or more in a tax year will have a £10,000 annual allowance for that tax year. However, if your 'threshold income' is no more than £200,000 you won't be subject to the tapered annual allowance. You can find out more about the tapered annual allowance by visiting MoneyHelper.

If the MPAA doesn't apply to you, it may also be possible to carry forward unused annual allowance from the three previous tax years. If you wish to consider this, we recommend you speak to your financial adviser, however there may be a charge for this. 

When deciding on how much to pay into your pension you should be aware of the lump sum allowance which is currently £268,275. This is the total amount you can take tax-free in your lifetime as tax-free lump sums and/or the tax-free element of any uncrystallised funds pension lump sums, unless you have a form of protection which increases your allowance. Once your lump sum allowance has been used up, any further payments will be fully taxed as income. While most people are unlikely to be affected by this, you should seek professional advice if you feel that this may apply to your situation. This information is based on our understanding of current taxation law and HMRC practice, which may change.

Don't forget

There are other popular savings products available for consideration, to help save for retirement. For example, ISAs don't offer tax relief on contrubutions, but they do offer an income without paying tax and the ability to withdraw savings when they're needed.

This content is for information only and shouldn't be interpreted as individual advice. Because everyone's circumstances are different, we recommend you request advice from a financial adviser. There may be a charge for this. If you don't have a financial adviser, you can visit moneyhelper.org.uk/choosing-a-financial-adviser to find the right one for you.

The value of an investment can fall as well as rise and isn't guaranteed. The final value of your pension pot when you come to take benefits may be less than has been paid in. The value of any tax relief will depend on individual circumstances.