How to Top Up Your Pension

The auto-enrolment minimum of 8% is a starting point, not a target. If you want a comfortable retirement, you will likely need to contribute more. This guide covers the main ways to top up your pension, the tax advantages of doing so, and when a pension top-up makes more sense than putting extra money into an ISA.

Additional Voluntary Contributions (AVCs)

AVCs are extra contributions you make on top of your regular workplace pension payments. Most workplace schemes allow you to increase your contribution percentage through your employer's payroll, and the additional amount goes into the same scheme (or sometimes a separate AVC arrangement run by the same provider).

The main advantage of AVCs through your workplace scheme is convenience. The money is deducted from your salary automatically, and you receive tax relief through the same mechanism as your regular contributions (either relief at source or net pay). If your employer offers contribution matching, increasing your AVCs may also trigger a higher employer contribution.

Some employers offer a "shared cost AVC" arrangement where they contribute to the cost of your AVCs. This is more common in the public sector. If your employer offers this, it is worth using because you get both tax relief and an employer subsidy.

If your workplace scheme has limited fund choices or high fees, you can instead make additional contributions to a personal pension (such as a SIPP) outside of your employer's scheme. The tax relief is the same, but you get access to a wider range of investments and potentially lower charges.

Salary Sacrifice for Top-Ups

If your employer offers salary sacrifice, using it for additional pension contributions saves you National Insurance on top of the income tax relief. For a basic rate taxpayer, a £1,000 pension contribution via salary sacrifice costs roughly £680 after income tax and NI savings, compared to £800 via relief at source (where you only save income tax).

For higher rate taxpayers, the savings are larger. A £1,000 salary sacrifice contribution costs roughly £480 after 40% income tax relief and 8% NI savings. Through relief at source, the same contribution costs £600 (after claiming the additional 20% via self-assessment).

The NI saving is the key difference between salary sacrifice and other contribution methods. If your employer offers salary sacrifice, it is almost always the most tax-efficient way to make pension contributions. See our pension tax relief guide for a full comparison of relief methods.

The £60,000 Annual Allowance

The annual allowance is the maximum amount you can contribute to pensions in a tax year while receiving tax relief. For 2024/25, the standard annual allowance is £60,000 or 100% of your earnings, whichever is lower. This limit covers all pension contributions across all schemes: your employee contributions, your employer's contributions, and any personal pension contributions.

If you exceed the annual allowance, you pay a tax charge on the excess. The charge is at your marginal income tax rate, which effectively removes the tax relief on the over-contribution. You report the excess on your self-assessment tax return.

For most employees, the £60,000 limit is well above what they contribute. On a £40,000 salary with 5% employee and 5% employer contributions, total annual contributions are £4,000, leaving £56,000 of unused allowance. The limit becomes relevant for higher earners, those making large one-off contributions, or those using carry forward.

If you have unused annual allowance from the previous three tax years, you can carry it forward to make a larger contribution in the current year. This is useful after receiving a bonus, selling a business, or inheriting money. For a detailed explanation with worked examples, see our carry forward guide.

Pension vs ISA for Additional Savings

When you have extra money to save beyond your regular pension contributions, the choice between topping up your pension and contributing to an ISA depends on your tax rate, your age, and when you need access to the money.

Pensions win on tax efficiency for most people. A higher rate taxpayer putting £1,000 into a pension effectively pays £600 (after 40% tax relief). The same £1,000 into an ISA costs the full £1,000 because ISA contributions come from post-tax income. The pension contribution is 40% cheaper upfront.

The trade-off is access. Pension money is locked away until age 55 (57 from 2028), and 75% of withdrawals are taxed as income. ISA money can be withdrawn at any time, tax-free. If you might need the money before retirement, an ISA gives you that flexibility.

For basic rate taxpayers, the calculation is closer. The 20% pension tax relief is partially offset by income tax on withdrawals in retirement. If you expect to be a basic rate taxpayer in retirement too, the net benefit of a pension over an ISA is smaller (though employer matching and NI savings via salary sacrifice still tip the balance toward pensions).

A practical approach: maximise your employer match first (free money), then use your ISA allowance (£20,000 for 2024/25) for accessible savings, then top up your pension further if you have additional capacity. Use our ISA calculator to compare ISA growth projections alongside your pension projections from the pension calculator.

When Topping Up Makes the Most Sense

Certain situations make pension top-ups particularly valuable:

• Higher rate taxpayer: you get 40% tax relief on contributions, but may only pay 20% tax on withdrawals in retirement. This 20% gap is a guaranteed return before any investment growth.
• Employer matching available: if your employer matches contributions above the minimum, every pound you add is doubled within the matching range.
• Salary sacrifice available: the NI savings on top of income tax relief make pension contributions cheaper than any other savings vehicle.
• Approaching the £100,000 income threshold: pension contributions reduce your adjusted net income. If your income is between £100,000 and £125,140, you lose your personal allowance at a rate of £1 for every £2 over £100,000. A pension contribution that brings you below £100,000 effectively receives 60% tax relief in this band.
• Child benefit clawback: if your income exceeds £60,000, you start losing child benefit through the High Income Child Benefit Charge. Pension contributions reduce your adjusted net income and can help you keep more of your child benefit.

For a full breakdown of how tax relief works at each income level, see our pension tax relief guide.