If you’re a UK taxpayer you’ll receive tax relief on pension contributions of up to 100% of your UK earnings or £3,600 gross if you’re unemployed.
Tax relief will be given if your:
- pension contributions are taken from your pay before income tax is deducted
- pension provider claims 20% tax relief from the government and adds it to your pension pot.
How does it work?
It depends on which of the two methods your employer uses for getting tax relief for you:
- Net pay arrangement takes your pension contributions from your wages before any tax is calculated. This means you benefit immediately from full tax relief on your contributions. If your earnings are below the starting rate for income tax, you don’t benefit from tax relief. However, this doesn’t affect the amount that’s paid into your pension and you’ll continue to benefit from the money your employer pays in.
- Relief at source takes your pension contributions after they’re taxed. The People’s Pension then claims tax relief at 20% on your contributions which is added to your pension pot. If you pay higher rates of tax on some of your earnings you may be entitled to further tax relief. You’ll need to complete a Self-Assessment tax return and submit it to HM Revenue & Customs.
You can find more information about tax relief on www.gov.uk/tax-on-your-private-pension/pension-tax-relief. And you’ll find useful information on our website: prodtpp.wpengine.com/employees/being-a-member-of-the-peoples-pension/grow-your-pension-pot/tax-relief-on-your-pension/