When you pay into your pension, the government gives you a helping hand in one of two ways:
• Relief at source – common for personal pensions and some workplace schemes. You pay in money that’s already been taxed, and your pension provider reclaims basic-rate tax (20%) from HMRC and adds it to your pot. That means if you put in £80, the government adds £20 – so £100 goes into your pension. If you think of it the other way round, every £100 you save gets a 25% boost.
• Net pay arrangement – common in many workplace schemes. Your contributions come out of your pay before tax is worked out, so you pay less tax straight away. The tax relief happens instantly via your payslip, rather than being added later.
You can get tax relief on private pension contributions worth up to 100% of your annual earnings. Contributions per year are capped at 100% of your annual earnings or £60,000, whichever is lower.* Non-taxpayers can still pay in up to £2,880 a year and get the government to top it up to £3,600.
There aren’t many places you can put money to get a boost like that. It’s all part of a big government plan to encourage people to save for retirement – and frankly, it’s pretty great.
Winner winner 🐔 🍽
*If you earn above £260,000/year your allowance may be lower.
With investment, your capital is at risk. Taxation depends on individual circumstances. Tax rules may change.