A lump sum into a pension: the rules first
Whether it is a bonus, an inheritance, business proceeds or maturing savings, a pension is often the most tax-efficient home for a lump sum thanks to upfront relief. But contributions are capped. The annual allowance is £60,000 for 2026/27 (or 100% of your earnings if lower), and you cannot get relief on contributions above your relevant earnings. For larger sums, carry-forward and phasing across tax years become essential.
How much can you invest with relief?
| Route | Limit 2026/27 | Notes |
|---|---|---|
| Annual allowance | £60,000 | Or 100% of earnings if lower |
| Carry-forward (3 years) | Up to ~£200,000 | Must have been a scheme member |
| Non-earner limit | £3,600 gross | If you have no relevant earnings |
| Tapered allowance | Down to £10,000 | Adjusted income over £260,000 |
Carry-forward is the key to investing a large lump sum: you can add unused allowance from the previous three tax years to this year's £60,000, potentially sheltering around £200,000 in one go - but relief is still capped at 100% of this year's earnings, so a large contribution needs a large salary behind it.
Lump sum now, or drip it in?
- Investing it all at once historically beats phasing about two-thirds of the time, simply because markets rise more often than they fall, so time in the market wins.
- Phasing (pound-cost averaging) reduces the regret risk of investing right before a crash, and can be sensible for the very nervous or for sums too large for one tax year.
- Tax timing - splitting a very large sum across tax years can keep more of it within the annual allowance and your earnings limit.
Where to put it
For the SIPP itself, a low-cost provider matters because the lump sum may be substantial - Interactive Investor's flat fee suits large pots, AJ Bell offers wide choice. For the investment, a global equity tracker (long horizon) or a multi-asset fund like LifeStrategy 60% (shorter horizon) keeps things diversified and cheap.
Where the lump sum is coming from matters
The source of your money can change the best approach. Proceeds from selling a business or property may be large enough that spreading contributions across two or three tax years is the only way to keep within your annual allowance and earnings limit. An inheritance carries no special pension restriction, but if it is substantial, blending pension contributions with ISA subscriptions captures both relief and flexibility. A redundancy payment can sometimes be paid partly into a pension by your employer, which can be highly efficient. In each case, the cap that bites is your relevant earnings - tax relief is limited to 100% of what you earn that year, no matter how big the windfall.
Don't let a big number paralyse you
Faced with a large sum, many people freeze and leave it in cash, where inflation quietly erodes it. The evidence is clear that getting invested matters more than perfecting the timing. If a single large investment feels daunting, a simple compromise is to invest a meaningful chunk straight away and phase the rest over three to six months, which captures most of the "time in the market" advantage while easing the fear of buying at a peak. What rarely works is waiting indefinitely for the "right moment" - that moment is only ever obvious in hindsight.
Verdict
The best pension for a lump sum is a low-cost SIPP, using carry-forward to maximise relief within your earnings limit, invested in a diversified tracker or multi-asset fund. Investing it all at once usually wins, but phasing suits the cautious. Maximise relief via best pension for tax relief, pick a cheap wrapper in best value SIPP, and model the outcome with our pension calculator.