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
-
What is Salary Sacrifice?
Salary Sacrifice is an alternative way of being paid by your employer, that could enable you to take home more money each month. But how exactly does this work? -
How much State Pension am I entitled to?
What does the State Pension mean to you? Not everyone is entitled to the same amount, so read on to find out how much might you get, and when you can expect to receive it. -
How a Lasting Power of Attorney works
There is a legal safeguard, known as Lasting Power of Attorney, or LPA, that you can put in place to help if you are no longer able to look after yourself, or make your own decisions. Here, we take a closer look at how LPAs work and how you can set one up. -
AVCs Explained
Did you know that it’s possible to top up your pension savings beyond what you usually contribute each month? We look at AVCs and explain how they can help you boost your pension savings.