Tax relief made simple
Your pension comes with all sorts of perks that make it one of the best ways to save for retirement. The money contributed to your pension saving is free from Income Tax and National Insurance, meaning that money that would have gone to the government is instead contributed to your retirement income.
How it works
Your employer can calculate the tax relief on your pension in a couple of different ways.
The net pay arrangement – this is when your contributions are paid directly into your pension before tax has been deducted from your earnings, so you don’t pay tax on them.
Relief at source – this is when your employer takes your pension contributions after your earnings have been taxed, then claims it back on your behalf and pays it into your pension.
How it’s calculated
Tax relief is calculated on how much you earn, which determines how much income tax you pay.
- Basic-rate taxpayers – Those who earn between £12,751 to £50,270 will benefit from 20% of tax relief
- Higher-rate taxpayers - Those who earn between £50,271 to £125,140 will benefit from 40% of tax relief
- Additional-rate taxpayers - Those who earn over £125,141 will benefit from 45% of tax relief
So, if you’re a basic-rate taxpayer, your tax relief is worked out at 20 percent, if you’re a higher-rate taxpayer it’s 40 percent, and so on.
The more you contribute to your pension, the more tax relief you’ll benefit from. Can you afford to contribute more? Click here to find out
Related news & insights
-
Making an impact – understanding our impact investment promises
In July 2022, we began to invest around £75million in ‘impact investments’. This means that, over the next few years, a small proportion of your pension savings will now be invested in funds that drive social and environmental change. -
Introducing the Islamic Global Equity Fund
As you save for retirement, you can invest your money in the things that are important to you – and that may be a better fit with your personal beliefs. As part of this approach, we have launched the TPT Islamic Global Equity Fund. -
The power of your pension: responsible investing
Your pension plays a vital role in funding your future – but it can make the world a better place, too. -
Low-cost days out for summer
As retirement approaches, you may be thinking of ways to slash spending so you can save more into your pension. Once you stop work, you’ll want that pot to stretch as far as it can, too. As the weather gets warmer, here are three great ways to spend less on days out.