Tax relief on your pension

To help you save for your retirement, the government provides tax relief on the earnings you put into your pension pot. So the tax you’d normally pay goes into your pension savings instead.

How much tax relief can you get?

Normally whatever rate of tax you pay, but there are some variations in how it works.

If you’re saving a lot into your pension, it’s also worth noting the annual allowance of how much you can save into your pension each year and get tax relief on. The standard limit is currently £40,000 – across all of the pension schemes you belong to. (Or less if you’ve already taken a flexible lump sum from your pension savings.)

Do you get it automatically?

  • If you pay the basic rate of 20% tax, then yes, you’ll always get it automatically.
  • If you don’t pay tax or you pay higher rate tax, you may get it automatically, but it depends on which tax relief method your employer uses.

How does tax relief work?

Your employer has to choose one of two methods. One takes your pension contributions from your pay before your wages are taxed, and the other takes your pension contributions after they’re taxed.

1. If your pension contributions are taken before tax

This is known as the net pay arrangement – which means your contributions are taken from your pay before your wages are taxed. You only pay tax on what’s left so you get your full tax relief straightaway, unless you don’t pay tax.

What if you don’t pay tax as your earnings are below the annual income tax personal allowance?

You will not benefit from the tax relief that a taxpayer would receive and you cannot claim any money back from HM Revenue & Customs (HMRC). You still need to contribute at least the same minimum amount that taxpayers have to contribute into their pension pots.

So for example, if your minimum pension contribution by law was meant to be £10 a month, your employer would take the full £10 a month from your wages. However, you’ll still continue to benefit from the money that your employer pays in to your pension pot.

2. If your pension contributions are taken after tax

This is known as relief at source – which means your contributions are taken from your pay after your wages are taxed. Then we automatically claim tax relief for you, adding the basic tax rate of 20% to your pension contributions.

What if you pay more than 20% in tax?

You get the first 20% back automatically, then you can claim the rest from HMRC in your tax return.

What if you don’t pay tax as your earnings are below the annual income tax personal allowance?

The government will still give you tax relief at the basic tax rate of 20% on the first £2,880 you pay into a pension each tax year.

So for example, if your minimum pension contribution by law was meant to be £10 a month, you’d only have to pay £8 a month and we would add the other £2 to each of your contributions as tax relief.

More information

Are you making extra contributions by Direct Debit?

These will automatically have tax relief added the relief at source way – at the basic tax rate of 20%.

Want to check which tax relief method you’re on?

Ask your employer whether your pension contributions are taken before (net pay arrangement) or after (relief at source) your earnings are taxed.

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