As 2026 approaches, many Britons are setting financial resolutions, with securing a comfortable retirement high on the agenda. While options like switching cash ISAs or investing in stocks exist, reviewing your pension arrangements is often the most impactful move, especially for those nearing retirement.
Maximise Tax Efficiency Before Rules Change
Personal finance expert Craig Rickman of Interactive Investor advises that reviewing your pension could be the best financial decision of 2026. A crucial first step is to locate your paperwork and understand your current savings.
For private sector workers, the workplace pension is typically the focus, but obtaining a state pension forecast is also vital. This reveals your expected payment date and highlights any gaps in your National Insurance record. You need 35 years of qualifying contributions for the full state pension, and gaps from the past six tax years can be filled by making voluntary payments.
One powerful tool is salary sacrifice, where employees exchange part of their salary for higher pension contributions. This can help some avoid crossing the £100,000 income threshold. However, the Chancellor's recent Budget introduced a £2,000 annual cap on salary sacrifice schemes per employee. Contributions beyond this limit will be subject to standard National Insurance rates of 8% on earnings under £50,270 and 2% above that.
This change does not take effect until April 2029, giving savers four tax years to benefit from the current, more generous rules and make pension saving more affordable by avoiding NI.
Combat Fiscal Drag and Reclaim Tax
The Budget also froze income tax thresholds until 2031, a 'stealth tax' expected to pull 780,000 more people into the basic rate, 920,000 into the higher rate, and 4,000 into the additional rate. Increasing pension contributions can mitigate this.
"Pension contributions, within certain annual limits, are exempt from income tax, so you can effectively claw back tax on contributions," Rickman explains. "Even small increases can have an outsized impact due to investment compounding."
This is especially beneficial for higher and additional rate taxpayers, saving 40% and 45% tax respectively. Those earning between £100,000 and £125,140 can save an effective 60% income tax rate, as pension contributions help them retain more of their £12,570 tax-free personal allowance.
Find Lost Pensions and Consider Consolidation
A staggering £31bn is locked away in over three million forgotten pension pots, according to Interactive Investor. People often lose track when changing jobs. You can trace lost pensions using the government's tracing service with the scheme name or a former employer's details.
Once found, consolidating multiple pots can simplify management as retirement nears. "We often collect small pension pots and end up with a mountain of paperwork," says Rickman. "Combining those pots won't be right for everyone, but it's worth considering."
Consolidation makes it easier to track performance and fees. However, be cautious: transferring some older pensions may cause you to lose valuable benefits like guaranteed annuity rates, so always check the specific rules of your pension fund before making any decisions.
