If you earn above the national average, retirement planning looks different for you than it does for most. The standard advice to save a slice of your salary each month is a useful starting point, but high earners face some unique opportunities and constraints that warrant a more considered approach.
Start with the pension annual allowance
The pension annual allowance is the maximum you can contribute each tax year while still receiving tax relief. For 2026/27 it stands at £60,000 or 100% of annual earnings whichever is lower, the same level it has held since April 2023. As a higher or additional rate taxpayer, contributing to a pension effectively costs you 60p or 45p in the pound for every £1 invested, with the taxman contributing the rest.
That is a remarkably generous incentive, but it comes with caps. High earners need to be aware of three things.
- The tapered annual allowance. If your adjusted income exceeds £260,000, your annual allowance is reduced by £1 for every £2 of income above that threshold, down to a minimum of £10,000.
- Carry forward. You can use unused allowances from the previous three tax years, which is invaluable if your income fluctuates or you have come into a windfall such as a bonus or the sale of a business.
- The money purchase annual allowance (MPAA). If you have already started drawing flexibly from a defined contribution pension, commonly known as a personal pension, your annual allowance drops to £10,000.
The lifetime allowance is gone
From 6 April 2024 the lifetime allowance was abolished and replaced with three new lump sum allowances. For many high earners this removed a significant barrier that previously capped how much could be accumulated in pensions without a tax charge. It is now possible to build substantially larger pots, although the lump sum allowance of £268,275 still limits how much you can take as a tax-free cash sum.
So how much should you actually save?
A common rule of thumb is to aim for a retirement income of around two-thirds of your pre-retirement earnings. For someone on £150,000 a year, that suggests targeting a pension pot well above £1 million depending on when you intend to retire and what other assets you hold.
In practice, the right number depends on your lifestyle goals, your existing pension provision, your other investments and your intended retirement age. High earners who are serious about retiring early often need to save well above the £60,000 annual allowance by using ISAs, general investment accounts and other tax-efficient wrappers alongside their pension.
Practical next steps
- Review your current pension contributions and check whether you are using your full annual allowance.
- Look at carry forward if you have unused allowance from recent tax years.
- Consider whether additional investments outside your pension make sense for your timeline, particularly in light of the April 2027 IHT changes, which may affect how much you want to accumulate inside a pension versus in other tax wrappers such as ISAs, or investments held jointly.
- If you expect your estate, including your pension, to approach or exceed the IHT nil-rate bands, take advice before drawing down, gifting or restructuring pension savings – decisions made now could have a significant IHT impact later.
- Speak to a regulated financial adviser, like ourselves, who can model your projected retirement income alongside the potential IHT position of your estate.
If you would like to understand how much you should be putting aside given your specific circumstances, book a free initial consultation with us. We help clients in Weybridge, Reigate and across Surrey make the most of their pensions and investments.
*Please note: A pension is a long-term investment not normally accessible until 55 (57 from April 2028). Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. The value of tax reliefs depends on your individual circumstances. Tax laws can change. Inheritance tax outcomes depend on your personal circumstances, the value and structure of your estate, and how benefits are paid out. They vary significantly between individuals.