How much tax do I pay on my pension?

You don’t pay tax on your pension contributions (when you pay money into your pension pot). The government actually gives you tax back as tax relief. So, the tax you’d normally pay goes into your pension savings instead.

There is however a limit to the amount that you can save into your pension and receive tax relief on. This limit is known as the annual allowance and for the current tax year it is £40,000.

The annual allowance applies to all the pension schemes you belong to. If you earn less than £40,000 per year you can receive tax relief up to 100% of your earnings. This allowance may be reduced when you take money out of your pension. Depending on how you take your pension savings, your money purchase annual allowance might be triggered.

There’s also a limit on how much you can pay into a pension in total over your lifetime before you may need to pay additional tax. At the moment the standard lifetime allowance is £1.055m.

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