Contributing to your pension pot reduces your taxable income and can give you back some or all of your £12,570 personal allowance. This allowance is progressively withdrawn once your earnings exceed £100,000. You lose £1 of the allowance for each £2 you earn above £100,000, meaning that the whole personal allowance is wiped out when earnings reach £125,140
If you’re a higher rate taxpayer with a taxable income of between £100,000 and £125,140, a pension contribution that reduces your taxable income to £100,000 would give an effective rate of tax relief of 60%. For those on higher incomes, or making bigger contributions, the effective rate would be between 40% and 60%.
Pensions and tax can be complex, so it’s a good idea to get some financial advice to find out what’s best for your circumstances. If you don’t have one you can find an adviser via unbiased.co.uk or moneyhelper.org.uk. You should check the adviser is regulated by the Financial Conduct Authority (FCA) by visiting the Financial Services Register at register.fca.org.uk. This gives you greater protection if things go wrong.