Planning for retirement can be one of the most crucial aspects of financial well-being and achieving your future goals. As such, a personal pension is likely to play a significant role in your process.
Personal pensions can offer substantial tax advantages that can enhance your long-term wealth and provide you with strategic means to save for your future. With the right approach, you can explore a range of investment portfolios to align your finances with your unique goals and needs – such as the Netwealth Liquid Reserves portfolio, for example.
In this article, we’ll take a closer look at how personal pensions work and how they can help you save more tax-efficiently.
What is a personal pension?
A personal pension is a specific investment account that allows you to make contributions that grow your savings over time towards your retirement.
Since the account is a personal pension – unlike a state pension – it’s up to you to manage and make contributions to the pension pot, as well as monitor the performance of your investments. Personal pensions offer flexibility, allowing you to make regular or one-off contributions, and they can be tailored to suit your retirement goals.
Tax benefits of personal pensions
One of the many advantages of personal pensions is that you receive tax relief on your contributions. For the 2025/26 tax year, you can receive tax relief on personal contributions up to 100% of the value of your earnings. Basic rate tax relief (20%) is often automatically claimed on your behalf, by the wealth management firm you opened your account with, and higher or additional rate taxpayers can claim further relief through self-assessment.
Investments within your pension will grow free from income tax and capital gains tax (CGT), giving you the opportunity to build a significant sum of money for when you retire, through regular contributions and compound interest over time.
Upon reaching age 55, you can access up to 25% of your pension pot as a tax-free lump sum, with the remaining funds subject to income tax upon withdrawal, depending on how you choose to access them.
Maximising tax efficiency
Personal pension services are designed to simplify retirement planning and help you make the most of your allowances.
You can consult a financial advisor to help you consolidate any existing pensions, so you have an easier way of monitoring and managing your investments to ensure efficient savings. Your advisor will also help you make regular contributions to take full advantage of the annual pension allowance – £60,000, for the current tax year.
Strategic planning for retirement
Effective retirement planning involves more than just contributing to your personal pension. It’s essential to consider how your pension fits into your overall financial strategy, and how you can create a comprehensive financial plan to align your decisions with your unique situation.
A modern wealth management firm can assist you in building a plan that includes tax-efficient investing, asset allocation, cash flow modelling, and choosing the right portfolio risk levels.
This holistic approach ensures that your retirement savings are aligned with your long-term goals and adapt to changes in tax regulations.
Please note, the value of your investments can go down as well as up.
