Earning more shouldn’t mean falling off a tax cliff! Instead, use smart pension contributions to save you thousands and better secure your future
After a stormy fiscal Summer, few were surprised that the UK Chancellor has pushed her annual Budget from October to late November. But the delay could prove to be your advantage—as it’s an ideal opportunity to finally fix your tax cliff edge risk, where your effective tax bill goes through the roof.
You are probably already aware (and noticed in your payslip) of hidden fiscal drag, where the freezing since 2021 of tax thresholds is pushing more people into higher tax brackets even without a formal rate increase. But there are ceilings (cliff edges!) in the UK tax system that mean earning £1 over a limit someone who wears a figurative bowler hat in the Treasury has defined without asking you immediately deprives you of a whole bunch of benefits you might have been relying on—the losing of which can knock the shine off that nice new salary you’ve worked so hard to secure.
Don’t step too close to that cliff edge…
For high-earning individuals in the UK, the tax system hides several “cliff edges” where a seemingly modest rise in income produces a disproportionate tax hit. Understanding where these traps can lie is essential to protecting your wealth, and one of the most effective ways to manage them is through well-timed pension contributions.
The scariest example is the loss of the personal allowance once income exceeds £100,000. For every £2 of adjusted net income above this line, £1 of allowance is withdrawn, evaporating completely at £125,140. In practice, this creates a 60% effective marginal rate on that slice of income, so a professional earning £110,000 instead of £100,000 a month before may find that the extra £10,000 leaves only £4,000 in their pocket after tax.
A different pressure point appears at £60,000, where the High-Income Child Benefit Charge begins to claw back support. For a family with two children, that can mean over £2,200 a year gone.
But be clear that the charge is based on adjusted net income. A gross pension contribution of £10,000 could reduce income from £70,000 to £60,000, not only saving higher-rate tax but also reinstating Child Benefit. As HMRC acknowledges, this simple adjustment can be worth thousands.
Those earning well into six figures face an additional challenge, the tapered annual allowance. Above £260,000 of adjusted income, the normal £60,000 pension allowance is reduced by £1 for every £2, falling to a minimum of £10,000. Without care, high earners risk breaching the allowance and facing tax charges on excess contributions. However, the rules also permit “carry forward” of unused allowances from the previous three years.
The abolition of the lifetime allowance from April 2024 has made pension planning more attractive still. With no ceiling on how much can be accumulated tax-advantaged, the focus has shifted squarely onto annual allowances and income-based traps.
Yet by making a pension contribution of £10,000 gross, the £110K earner can bring their adjusted income back to £100,000, restore their full allowance and save £6,000 in tax — with the entire £10,000 invested for their future. A senior executive with £280,000 of income could use historic headroom if it exists to contribute well above their tapered limit in the current year, securing valuable relief at 45% while staying compliant.
Let’s protect your take-home now and income in the future
For many high-net-worth individuals, pensions now represent the most powerful legal tool to pull income back from punitive thresholds, restore lost benefits and extract maximum value from the reliefs the system provides.
The message is clear: whether you are at £60,000 and losing Child Benefit, at £110,000 and caught in the 60% tax trap, or above £260,000 facing tapering, pensions are no longer just a retirement savings product. They are a strategic lever for managing today’s tax exposure. Acting before the next Budget — in a climate where thresholds remain frozen and the risk of further rises is real — can deliver immediate savings and long-term security.
A final thought: that October and now November Budget is, according to most commentators, expected to contain even more tax rises. If so, it really would be to you and your loved ones’ advantage to head off as much negative impact from that as you can—so why not start a conversation to see how we can help today?
- This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
- The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
- The value of pensions and any income from them can fall as well as rise. You may not get back the full amount invested.