Pension Power: The £60,000 Opportunity

One of the most efficient ways to extract value from your company in 2026/27 is through direct pension contributions. Unlike a salary - which attracts National Insurance on both sides of the employment relationship - or dividends paid from profits already taxed at 19–25%, employer pension contributions are a fully deductible business expense with no NIC charge whatsoever.

Why employer contributions beat personal contributions

When you contribute to a pension personally, you first pay income tax on your earnings, then receive tax relief to bring the contribution back to the gross amount. An employer contribution bypasses this entirely - the money goes straight from your company into the pension without ever being subject to income tax or NIC. For a 40% taxpayer, this represents a material additional advantage over the personal route.

Consider a director who wants £20,000 in their pension. Via salary: the company needs to pay out roughly £34,000 (accounting for employer NIC and the director's income tax) to put £20,000 in the pension. Via employer contribution: the company simply pays £20,000 directly. The saving is immediate and unambiguous.

The Corporation Tax saving

If your company is in the Marginal Relief bracket - profits between £50,000 and £250,000 - your effective Corporation Tax rate is 26.5%. A £10,000 pension contribution reduces taxable profits by £10,000, saving £2,650 in Corporation Tax. That saving is available immediately in your next CT payment or can reduce your liability at the year-end.

For companies paying the full 25% rate (profits above £250,000), a £60,000 maximum contribution saves £15,000 in Corporation Tax alone. When combined with the NIC saving that would have applied on an equivalent salary, the total tax benefit can approach £20,000 on a single contribution.

Key rules for 2026/27

• Annual Allowance: £60,000 for most individuals. This covers all contributions - employer, employee, and personal - into all registered pension schemes.
• No NIC on employer contributions: Neither you nor the company pays National Insurance - a significant advantage over equivalent salary.
• Tapered Annual Allowance: If your "adjusted income" exceeds £260,000, the allowance begins to taper down to a minimum of £10,000. Threshold income (broadly, salary and dividends before pension contributions) must also exceed £200,000 for tapering to apply.
• Carry Forward: Unused allowance from the previous three tax years can be added to this year's limit - potentially allowing contributions well above £60,000 if prior years were unused.

Using carry forward strategically

If you have not fully used your pension allowance in 2022/23, 2023/24, or 2024/25, you can carry those unused amounts forward. The maximum available via carry forward (assuming no contributions were made in the prior years) would be the 2022/23 allowance of £40,000 plus £60,000 for each of 2023/24 and 2024/25, plus the current year's £60,000 - a total potential contribution of up to £220,000 in a single year.

This is particularly powerful in a year when your company has had unusually high profits, or when you are approaching retirement and want to accelerate pension funding. Carry forward must be used in chronological order - oldest years first.

What pension types qualify?

Employer contributions can be made to a Self-Invested Personal Pension (SIPP), a Small Self-Administered Scheme (SSAS), or a workplace pension. The SSAS in particular is popular with owner-managed businesses because it can lend money back to the company (up to 50% of the fund value) and can hold commercial property - including your own business premises - within the fund, generating rental income that is free from both income tax and Capital Gains Tax.