Is Your Pension Plan Tax-Efficient? July Review Tips for 2025 (UK)
As we reach July 2025, reviewing your pension plan for tax efficiency is more important than ever. With evolving UK pension rules, frozen tax thresholds, and new policy reforms, a mid-year check can help you maximise your retirement savings and minimise unnecessary tax liabilities. Here’s how to ensure your pension plan is working as hard as possible for you this year.
1. Maximise Your Annual Allowance
- For 2025/26, most UK residents can contribute up to £60,000 per year into pensions and receive tax relief, though this is capped at your annual earnings if lower.
- High earners (adjusted income over £260,000) face a tapered annual allowance that can reduce the limit to as low as £10,000.
- If you haven’t used your full allowance in the past three years, you can carry forward unused amounts, provided you were a member of a UK-registered pension scheme during those years.
2. Use Salary Sacrifice and Employer Contributions
- Salary sacrifice arrangements allow you to exchange part of your salary for pension contributions, reducing your taxable income and National Insurance contributions.
- Always check if your employer offers matching contributions—this is essentially free money towards your retirement.
3. Review Your Drawdown Strategy
- When you access your pension, you can usually take 25% tax-free; the rest is taxed as income.
- Plan withdrawals to avoid moving into a higher tax band. Taking smaller, regular amounts can help you stay in a lower tax bracket.
- If you start flexible withdrawals, the Money Purchase Annual Allowance (MPAA) applies, reducing your future tax-relieved contributions to £10,000 per year.
4. Stay Informed on Policy Changes
- The Pension Schemes Bill 2025 introduces reforms aimed at consolidating small pension pots, improving value for money, and streamlining the transfer process.
- The government’s Pensions Investment Review focuses on boosting returns for savers and encouraging pension funds to invest in UK assets.
5. Consider Inheritance Tax and Estate Planning
- Future changes may affect how pensions are treated for inheritance tax. Review your estate plan and consider using trusts or making gifts within your annual allowance to reduce your taxable estate.
6. Regularly Review and Rebalance Investments
- Check if your pension investments still align with your goals and risk appetite. Rebalancing annually can help you stay on track and take advantage of market opportunities.
- Use online tools or consult with a financial adviser for tailored advice.
7. Don’t Overlook Tax Relief
- Basic-rate taxpayers receive 20% tax relief on contributions, while higher and additional-rate taxpayers can claim extra relief via self-assessment.
- Ensure you’re not missing out on valuable tax benefits, especially if you’re a higher earner or have multiple pension pots.
Key 2025/26 UK Pension Allowances
| Allowance Type | 2025/26 Limit | Notes |
| Annual Allowance | £60,000 | Reduced for high earners (tapered to £10,000) |
| Money Purchase Annual Allow. | £10,000 | Applies after flexible withdrawals |
| Tax-Free Lump Sum | 25% of pot | Up to £268,275 |
| Carry Forward (unused) | Up to 3 years | Must have been scheme member |
Final Thoughts
A tax-efficient pension plan review in July 2025 is essential for UK savers. By maximizing contributions, leveraging salary sacrifice, planning withdrawals, and staying up to date with policy changes, you can boost your retirement savings and reduce your tax burden. Regular reviews and professional advice will help you adapt to new rules and secure your long-term financial future.