Company Pension Contributions for Directors 2026/27: Limits and Tax Saved

No employer NI on pension contributions

Employer pension contributions are exempt from employer NI. In 2026/27, employer NI is 15% on salary above £5,000. A director salary of £20,000 costs £2,250 of employer NI (15% × £15,000). A pension contribution of the same £20,000 costs none.

The saving grows with the amount. Taking an extra £30,000 as salary, once your salary is already above £5,000, costs the company £30,000 plus £4,500 of employer NI, with income tax and employee NI to pay on top. Contributing £30,000 to a pension costs the company exactly £30,000.

If you are already taking a £12,570 salary, any extra you do not need now is usually better paid as a pension contribution than as more salary.

Annual allowance: how much can a director contribute?

The pension annual allowance for 2026/27 is £60,000.¹ It covers every contribution in the tax year: the company's employer contributions, your own personal contributions and any other workplace pension. Contributions above it are subject to an annual allowance charge at your income tax rate.

Personal contributions only get tax relief up to 100% of your UK earnings (or £3,600 gross if that is higher), so a director on a low salary cannot get relief on large personal contributions. Employer contributions are not limited to your salary: the company can pay in more than it pays you, up to the annual allowance, as long as the amount is justifiable as a business expense.

Carry forward: use 2023/24's allowance by 5 April 2027

If you did not use your full annual allowance in the last three tax years, you can add what is left to this year's £60,000.² In 2026/27 the three years are 2023/24, 2024/25 and 2025/26, each with a £60,000 allowance, so a director who paid nothing in could have up to £240,000 of room this year.

You can only carry forward from a year in which you were a member of a registered pension scheme, and HMRC uses the unused allowance from the earliest year first.² Whatever is left of 2023/24's allowance is lost after 5 April 2027, so a company with a strong year can use it with a contribution paid on or before that date.

The tapered annual allowance: high earners

The annual allowance is reduced if your threshold income is over £200,000 and your adjusted income is over £260,000.⁴ Adjusted income broadly includes employer pension contributions, so a large company contribution can bring you into the taper.

For every £2 of adjusted income over £260,000, the allowance falls by £1, down to a minimum of £10,000 (reached at £360,000 of adjusted income).⁴ Most owner-managed company directors are below these levels; if you might be above them, work out the figure before the company pays in.

Already drawing a pension? The money purchase annual allowance

If you have flexibly accessed a pension, for example by taking taxable cash from a pension pot or from flexi-access drawdown, a lower money purchase annual allowance of £10,000 a year applies to further money purchase contributions, and it cannot be carried forward.¹² Check this before planning large company contributions.

Worked example: £120,000 profit and a £20,000 pension contribution

A director takes a £12,570 salary from a company with £120,000 of profit, has no other income, and takes everything left after corporation tax as dividends. Should £20,000 go into a pension first?

Without the pension: employer NI on the salary is £1,135.50, so taxable profit is £106,294.50 and corporation tax (with marginal relief) is £24,418.04. That leaves £81,876.46 of dividends, which cost £19,792.08 of dividend tax. Total tax: £45,345.62; the director keeps £74,654.38.

With the £20,000 company contribution: taxable profit falls to £86,294.50 and corporation tax to £19,118.04, £5,300 less (26.5% of the contribution, the marginal relief band rate). Dividends fall to £67,176.46, with £14,536.83 of dividend tax, £5,255.25 less, because the dividends cut are ones that would have been taxed at the 35.75% higher rate.

Total tax falls by £10,555.25. Take-home falls by £9,444.75 while £20,000 goes into the pension, and there is no NI on the contribution (the same £20,000 paid as extra salary would cost the company £3,000 of employer NI at 15%).

• Director pension contribution calculator — run the same comparison with your own profit, salary and contribution

The extraction choice: pension vs salary vs dividends

Pension contributions sit alongside salary and dividends as a third extraction route. The key trade-off is timing. A pension contribution builds future wealth but is not immediately spendable. Salary and dividends provide current income.

At lower extraction levels, salary to the NI secondary threshold plus dividends for remaining income needs is a common starting point. Adding pension contributions makes the most sense when you have surplus company profit you do not need immediately, the corporation tax saving is material, and you have pension allowance room available.

For companies in the marginal relief band (profits between £50,000 and £250,000), the effective marginal rate is 26.5%. A pension contribution reducing profit within this band saves 26.5p per pound in corporation tax, more than at either the small profits rate (19p) or the main rate (25p).

Interaction with corporation tax and marginal relief

The tax relief on a company pension contribution depends on the company's corporation tax rate. At the 19% small profits rate, a £10,000 contribution saves £1,900. At the 25% main rate, it saves £2,500. In the marginal relief band it saves £2,650.³

If a pension contribution takes profit below the £50,000 small profits limit, the part below the limit only saves 19%. That is worth modelling before you decide on the amount.

• Marginal relief calculator — the corporation tax at any profit, with the 3/200 formula

How the company pays, and when it gets the relief

The company pays the contribution straight from its bank account to the pension scheme. It does not go through payroll or appear on a payslip. Most SIPPs and workplace schemes accept employer contributions.

Corporation tax relief is given for the accounting period in which the contribution is paid, not when it is accrued in the accounts. With a 31 March year end, a contribution paid on 30 March counts for that year; one paid on 2 April counts for the next.

A company whose only staff are directors without employment contracts generally has no automatic enrolment duties for them. Any employees still have to be enrolled.

Pension or retained profit?

Leaving profit in the company and paying into a pension both put off personal tax. Retained profit can be taken out at any time as dividends or salary, but it is taxed when it comes out. Pension money is locked away until the normal minimum pension age: 55 now, rising to 57 on and after 6 April 2028.⁵

Inside the pension, investments grow free of income tax and capital gains tax. When you draw it, usually up to 25% can be taken tax-free and the rest is taxed as income. If you may need the money before pension age, retaining it in the company keeps it reachable; if not, the pension usually wins because of the corporation tax saved now.

Practical considerations and limits

Company pension contributions must be genuinely for your retirement provision and commercially justified. HMRC can challenge contributions it considers excessive or not wholly and exclusively for business purposes.

Company pension contributions do not count as personal income for dividend tax or income tax purposes, and they do not appear on your Self Assessment return in the year they are paid.

Using the calculator for pension planning

Enter a pension contribution in the pension field of the calculator to see the effect on corporation tax, post-tax company profit and dividends available. The model treats it as a company expense before corporation tax, which is the correct treatment.

Compare the take-home and retained profit figures with and without the pension contribution. The contribution reduces both the corporation tax bill and the amount available for dividends, while adding to pension savings.

For significant contribution levels, work with a financial adviser who can assess your annual allowance position, carry-forward availability and whether the contributions meet HMRC's commercial justification test.