Private pensions offer considerable tax incentives to the investor but, if you earn a high level of income, the amount that you are allowed to contribute can be restricted. As well as your earnings, your age limits the maximum amount you are able to pay into a private pension. The ceiling on earnings that can be pensioned is capped at £97,200 for the tax year 2002/03, while the maximum amount an employee can pay into a company pension scheme is 15 per cent of capped earnings, regardless of age. The earnings cap is a problem if you earn above this level, in that you cannot pension your earnings above this amount. What, therefore, are the possible solutions? Contributions Limits Age Personal and Stakeholder Pensions Maximum % of earnings (earnings capped) Retirement Annuities Maximum % of earnings (no earnings cap) On 6 April (or £3,600 per annum if greater)     Up to 35 17.5 17.5 36-45 20 17.5 46-50 25 17.5 51-55 30 20 56-60 35 22.5 61-74 40 27.5 Take it to the max Firstly, have you maximised your private pension contributions? If not, you might want to check that you are making full use of contributions up to the earnings cap. If you pay tax at the higher rate, part or all of your contributions could receive tax relief at 40%. No earnings cap If you have a retirement annuity contract - the old style of personal pension taken out before July 1988 - there is no earnings cap limit. The age-related contribution limits are different from personal pensions, so you may be able to pay more into this plan than into a personal pension. An IFA can help you calculate this. Basis year rule Another way of maximising your contributions is now available under a new contribution rule known as the 'basis year' rule. This states that you are now allowed to base your personal pension contributions either on your current year's earnings or on any one of the previous five years' earnings. This means you can pay personal pension contributions based on your best recent earnings, subject to the cap, even if your earnings are currently below the cap. The basis year rule is particularly useful when earnings can be manipulated. For example, if you are a shareholding director you probably take your remuneration in the form of salary and dividends, as dividends do not attract National Insurance contributions. Under the basis year rule, your earnings could be adjusted so that the salary is maximised up to the earnings cap in one year with a corresponding adjustment in the dividend income, before returning to the normal ratio of salary and dividends in the following and subsequent years. Cessation year rule Possibly the best piece of planning news is the 'cessation year' rule. This allows you to continue to make your pension contributions for the first five full years of retirement, for instance based on earnings up to five years prior to your retirement. This could save you significant amounts of income tax and potentially, inheritance tax - particularly if your pension death benefits use appropriate trusts. The second possible solution to a drop in income at retirement is to maximise your company pension contributions. If you are not already doing so, ensure that you are making full contributions of 15 per cent of earnings up to the earnings cap. If you joined your employer's pension scheme prior to 17 March 1987 the earnings cap may not apply, in which case you can make considerably higher contributions. FURBs If appropriate it could also be worth investigating using a Funded Unapproved Retirement Benefit Scheme (FURB). FURBs are a type of company pension scheme normally reserved for those who are funding their pensions to the maximum. They are not as tax efficient as normal pensions or ISAs, but they do have favourable tax rates on the growth within the fund. FURBs allow unlimited contributions, which, if paid by the employer, are treated as salary payments in the employee's hands and taxed accordingly. However, you can take the full fund at retirement tax-free, whereas with a normal pension scheme you cannot. FURBs can also invest in anything, including residential property, which an approved scheme cannot do, and many see this as an attractive investment opportunity. Other options In addition, don't overlook pension funding in your spouse's name up to his or her own earnings cap. Even if your spouse is a non-earner, you can still make personal pension contributions on his or her behalf. Lastly, don't forget that saving for retirement does not automatically mean pensions. If you are a higher earner you could also consider making use of other savings and investment vehicles, in particular ISAs and venture capital trusts.