UK Pension Calculator

When you contribute to a pension, the government adds tax relief at your marginal rate. For a basic rate taxpayer, a £100 pension contribution only costs £80 because the pension provider claims back 20% from HMRC. Higher rate taxpayers can claim an additional 20% through their tax return, making the true cost just £60.

This makes pensions one of the most tax-efficient ways to save. If your employer offers salary sacrifice for pension contributions, you also save National Insurance (8% for employees), making it even cheaper. On a £100 salary sacrifice pension contribution as a basic rate taxpayer, the true cost to your take-home pay is just £72.

When you access your pension (from age 55, rising to 57 in 2028), you can usually take 25% of your total pot as a tax-free lump sum. The remaining 75% is then taxed as income when you withdraw it. For example, if your pension pot is £400,000, you could take £100,000 tax-free and draw income from the remaining £300,000.

Many people spread their withdrawals over several tax years to stay within the basic rate band, reducing the total tax they pay. You do not have to take the 25% all at once.

The 4% rule is a widely used guideline for retirement income. It suggests that if you withdraw 4% of your pension pot in the first year (adjusting for inflation each year after), your money should last at least 30 years.

For example, a pension pot of £500,000 would provide roughly £20,000 per year under this rule. Combined with the full State Pension of £11,502 per year, that gives a total retirement income of around £31,500. This calculator uses the 4% rule to estimate your retirement income.

All UK employers must automatically enrol eligible workers into a workplace pension. The minimum total contribution is 8% of qualifying earnings: 5% from you and 3% from your employer. You can opt out, but you would lose your employer's contribution, which is essentially free money.

In April 2024, the Lifetime Allowance (previously £1,073,100) was officially abolished. There is no longer a cap on how much you can accumulate in your pension pot over your lifetime without facing punitive tax charges.

However, it was replaced by the Lump Sum Allowance (LSA), which caps the maximum tax-free cash you can withdraw at £268,275 (exactly 25% of the old LTA). Any lump sums taken above this limit are taxed at your marginal rate.

The Carry Forward rule allows you to use up unused annual pension allowances from the previous three tax years, potentially enabling you to contribute far more than the current £60,000 limit in a single year and receive massive tax relief.

To use carry forward, you must have been a member of a registered pension scheme during the years you are carrying forward from. You must also use your current year's £60,000 allowance fully before tapping into previous years. This strategy is incredibly powerful for company directors making employer contributions or high earners trying to mitigate the £100k tax trap.