Pension planning for a HENRY

HENRY (High Earner, Not Rich Yet) is the bracket I sit in if you can call that a bracket. The salary looks great on a payslip, the marginal tax rate is brutal, and the actual wealth on the balance sheet is a fraction of what people assume. Pension planning is one of the few levers that could actually matter for someone in this spot, but alas because of tapering not even that is a great option. I want to lay out how I see the UK system in 2026, what my current setup looks like, and the questions I'm sitting on for the next ten years.

The UK pension system in a nutshell

A UK pension is a tax-deferred wrapper. Contributions go in before tax, growth is untaxed, and only the eventual income is taxed when you draw it (apart from the tax-free lump sum, more on that below).

A few numbers worth knowing (with plenty of caveats):

• Annual allowance: £60,000 a year of total contributions (yours plus employer) qualify for tax relief. Anything above that is taxed at your marginal rate.
• Tapered allowance: If your adjusted income goes above £260,000, the annual allowance starts to taper down, eventually to £10,000.
• Personal allowance trap: Between £100,000 and £125,140 of income, every £1 earned costs you 60p (40% tax plus the £1-for-every-£2 personal allowance withdrawal). Pension contributions are the cleanest way to claw that back.
• Tax-free lump sum: You can take 25% of your pension tax-free, capped now by the Lump Sum Allowance of £268,275 rather than a percentage of your pot.
• Access age: 55 today, rising to 57 from April 2028. Anything you put into a pension is locked away until then.

For a HENRY earning above £100k, the maths usually points strongly toward filling the pension. Relief at the margin today is worth a lot more than relief on contributions made later in life at a lower marginal rate. Now for someone who has a tapered allownace, it means the pension planning might not be as important.

My current setup

Throughout my working career I had a few pensions which I combined into my Interactive Investor SIPP as it has flat fees. My current workplace pension contributes 13% up to a salary cap, all of it without me ticking a single box. I have only recently hit the max tapered allowance which is why now I am having thoughts on whether to contribute more to my pension or not.

What this could look like

Below is a projection of what the pension pot could grow to between now and access age, assuming I keep contributing at the current rate. The two lines split the most common confusion in this kind of chart: the nominal number (what the brokerage will show you on the day) and the real number (what it'll actually buy you, in today's money, after inflation chews on the figure for thirty years).

Historically, a global all-world equity portfolio has returned around 7% nominal and 5% real over long periods. Past performance, all the usual caveats, but those are reasonable centre-of-the-distribution numbers.

The gap between the two lines is the part of the system that gets ignored in WhatsApp chats. A pot that hits seven figures in 2050s nominal terms sounds like serious money, until you remember that decades of 2 to 2.5% inflation have chewed it down to roughly half that in today's purchasing power. Both numbers matter, but the real number is the one I plan around.

Hitting the (former) lifetime allowance

The Lifetime Allowance was scrapped in April 2024. Before that, anything in a pension above £1,073,100 got hit with a punitive charge on top of normal income tax when accessed. It was abolished and replaced by the Lump Sum Allowance (£268,275 of the 25% tax-free portion) and the Lump Sum and Death Benefit Allowance (£1,073,100 across all tax-free and death-related lump sums).

In practice, this means:

• The pot itself is no longer capped. I can let it grow without worrying about a 55% surcharge at the top.
• The 25% tax-free portion is capped in cash terms, not as a percentage. If my pot hits £2M, I still only get £268,275 tax-free, not £500k.
• The rest comes out as taxable income at my marginal rate when drawn.

For projection purposes, this changes the planning. There's no longer any reason to deliberately under-contribute to avoid breaching a ceiling. The bigger question now is income-tax-rate management in retirement: keeping drawdown inside the basic-rate band where possible, blending pension drawdown with ISA withdrawals (tax-free), and timing big withdrawals across tax years.

If the projection above is even directionally right, I'll comfortably cross the old LTA. The largest issue I have though, is that pension could change at any point. They are currently already moving the minimum pension age, income tax brackets are frozen and could be going up, so drawing down from the pension is a tough question in itself but I generally would say one I prefer to avoid by not focusing more on my pension contributions (I have a final decision to make regarding using my carried over allowance).

What about moving abroad

This is the part of the planning where I'm most interested in but have little insight. The UK pension rules interact with double-tax agreements (DTAs) and overseas pension regulations in ways that are easy to get wrong.

The high-level picture, as I understand it:

• A UK pension can be left in place when you move abroad. You don't have to transfer it.
• Where it gets taxed on withdrawal depends on the DTA between the UK and your country of residence. Some agreements give the residence country exclusive taxing rights on pension income, some give the UK a right to tax at source.
• Transferring to an overseas scheme (a QROPS) used to be a popular move. The Overseas Transfer Charge, expanded in 2024, now applies a 25% charge to a much wider set of transfers, so the calculus is very different from a few years ago.
• The 25% tax-free lump sum rules can interact awkwardly with foreign tax systems. Some countries don't recognise it as tax-free and will tax the full lump sum as income.

The countries that come up most often in this conversation are Portugal (the NHR regime is much narrower than it used to be), Cyprus (5% flat tax on foreign pension income under the right scheme), Italy (7% flat tax for retirees moving to certain southern regions), and the UAE (no personal income tax at all, but pension treatment depends on the DTA).